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A capitalistic economy is one in which the people use the factors of production to trade and the profits realised are then used to invest in new technologies. The Australian economy has a mixture of liberal and capitalistic economy. Liberal economy is whereby there is no government interference. The economy is always left to balance itself through the forces of demand and supply. In such an economy it is important to have many private businesses. The private businesses dominate the economy. However since there are many risks that are likely to occur in the market, the government has some kind of influence on the Australian economy. The Australian capitalistic economy like any other is composed of all the working classes from top to bottom. The top has few people who are very rich whereas the bottom is composed of the poor people. The government may interfere by setting up laws and regulations which make it difficult for the businesses to operate freely, but it has some positive effects too.

Government – business relations

Government – Business Relations

It is very important to discuss the relationships that exist between the government and the businesses as this will help the business to strategize on the means through which it will achieve its objective. In discussing this topic it is very important to first define the meaning of the key words which are the state, business and capitalism (Bookrags, 2009).

State: this is the government which gets involved through putting some rules and regulations aimed at ensuring that the interests of the public are protected. The state is that body that is responsible of ruling a country and imposing the laws of that particular country. The state also has the responsibility of representing the people in international deals (Seldon, 2007). Countries are continually interacting with each other in trade and for this to happen in such a way that the citizens of a particular country may not be affected, it is important for the government to interfere. The government is formed by people who are elected by the citizens of the country to lead them. These leaders are charged with the responsibilities of making laws which are for the common good of the public (Richard, 2006).

Business: this is an organization that is formed for the purpose of carrying out activities that will lead to making of profits. There are many types of businesses that a person can carry out. For example, one can specialize in the service industry or deal with tangible goods (Scott, 2003).

There are however forms of business organizations that are used to categorise the businesses on a broad scale. These categories include sole proprietorship, companies and partnerships. The main aim of carrying out business is to make profit. However, not all organisations are profit making. There are non-profit making organisations which aim at promoting the welfare of the community (Luxemburg, 2004).

Capitalism: this is a type of economy whereby the factors of production are controlled by the private sector. The products, capital and labour are used in trade in these markets and then the profits that are realised are either given to the owners or used for further investment in other industries or new technologies. Many people agree that capitalism encourages growth economically. Many countries adopt mixed economies which is an incorporation of two or more types of economies. There are basic elements which led to the development of capitalism. These elements include goods which may be consumer goods or capital goods; money; labour both mental and physical; the means of production; and the production process (Doucouliagos

Government – Business Relations

et al 2006).

The role of the state

The state is charged with the responsibility of laying down rules and regulations which guide the operations of these businesses. This is done so as to protect the public interest. If businesses were left to run without the involvement of the government through rules and regulations, the public would likely suffer from social evils such as drug trafficking, swindling, selling of fake goods etc. The government has therefore put up some bodies which check on the products such as the weights and measure body which ensures that the products been sold are of the right weight as specified on their package. The government also collects taxes from the people so as to get revenue that it uses provide public goods such as roads, social amenities etc.

Analysis of the effect of the roles of government on businesses in Australia

There are two major ways in which the government gets involved in the operations of the businesses in Australia (Reserve bank of Australia bulletin, 1998). These two major ways are the monetary policy and the fiscal policy. The two methods are discussed as follows:

Monetary policy: this is carried out on behalf of the government by the Reserve Bank of Australia (Reserve bank of Australia bulletin, 1998). The bank has a role to ensure that inflation rates do not go up. Inflation is the state where buy the money supply is so high and the supply of resources is low such that the prices have to go up. The bank therefore deals with this problem by buying and selling the government securities, and through domestic operations (Samuelson, 2005). The selling of government securities is done when the supply of money in the market is high so as to reduce this supply and prevent inflation. The buying of government securities on the other hand is done when the supply of money in the market is low. Domestic operations encourage the local industries and thus the government’s spending on imports is discouraged thus preventing losses through trade. The local industries are able to do well and thus more people are employed, leading to the overall wellbeing of the society (Australia’s

Government – Business Relations

Microeconomic Reforms, 2002).

A disadvantage of this role is that imports which could have been of a higher quality as compared to the local goods could be discouraged. This is an opportunity cost and the people might end up using goods of quality goods.

Fiscal policy: this involves manipulation of the government’s budget so as to achieve the economic state the government desires (Australia’s Microeconomic Reforms, 2002). In cases of recession, the government needs to come up with expansionary policies. Such policies involve putting finance into the economy so as to hasten the economic rate. This is where government spending comes in. To increase government spending, taxes are lowered. If there is no recession, Contractionary policies are used. These operate by decreasing the government spending and the expectation of inflation. Therefore the government increases the amount of tax imposed on the businesses. This fiscal policy is advantageous in that the economy of the country grows and cases of inflation are prevented from occurring (Samuelson, 2005).

A disadvantage of the fiscal policy is that the raising of the tax rates is not taken kindly by the public. The people see it as a means of exploiting them and they would like to avoid it as much as possible. This leads to the widespread cases of tax evasion. Most people feel the burden of taxation and do not like it. They therefore actively conceal the details of their businesses so as to avoid paying these taxes (Samuelson, 2005).

The two methods: that is fiscal policy and monetary policy, are similar in terms of the role they play in trying to stabilize the economy and keep it in a better state (Lipsey, 2003). Although they are different in terms of how they function or how they are employed, the result they achieve is the same. The Australian government achieves positive outcomes in economy and socially through the manipulation of these policies. A free market has a high chance of facing many failures and thus needs the government to interfere so as to take care of such issues.

Government – Business Relations


Business are organisations which are formed with an aim of making profit, but during their operations they are faced with many challenges and depending on which type of economy they are operating in, they might end up failing. Capitalistic economies are those where the businesses are privately owned and they rely on the forces of supply and demand. These economies involve the use of the factors of production and trading in them. The profits realised are used for further investment. They therefore need the government to get involved to some extent so as to protect them from the upsets that occur in the economy.


Bookrags (2009); Retrieved from: on 24t


November 2009

Seldon A (2007); Capitalism: A condensed version; London: Institute of Economic affairs

Richard S (2006); The culture of New Capitalism; New  Jersey: Prentice Hall

Scott J (2003); Corporate Business and Capitalist Classes; Massachusetts: MIT

Luxemburg R (2004); The Accumulation of Capital; Chicago: University of Chicago Press

Doucouliagos H, Ulubasoglu M (2006); Democracy and Economic Growth: A meta-analysis;

Sidney: School of Accounting, Economics and Finance Deakin University Australia

Government – Business Relations

Reserve bank of Australia bulletin (1998); Retrieved from: ndResearch/Bulletin/bu_oct98/bu_1098_2.pdf

on 24


November 2009

Australia’s Microeconomic Reforms (2002): Retrieved from:





November 2009

Samuelson P (2005); Principles of Economics; New  Jersey: Prentice Hall

Lipsey J (2003); Economics; London: Macmillan Publishers