Home Dialogue Q&A: The Usefulness of Intervention

Q&A: The Usefulness of Intervention

Dialogue

We asked: Should the government seek to intervene and protect Armenia’s production and bail out some important industries which are in trouble, like mining?

Twenty-six of you said no; 104 said yes. There were eight I don’t knows, but the majority clearly felt government intervention is a good thing.

This overwhelming yes can be interpreted in various ways, as can the minority No vote. Did you vote no because you don’t believe intervention is necessary? Or is the mining sector not the one worthy of support? Finally, how many voted no because they believed that intervention is indeed necessary, but not just at a time of crisis?

 

Intervention can mean different things. At one extreme, it means outright subsidies to private enterprise within a sector. Throughout Europe and the United States, agriculture is heavily subsidized. Milk producers receive government funds to keep milk prices low and affordable. On the other hand, some produce farmers are sometimes actually paid not to farm in order not to cause a drop in prices and decrease income to farmers.

Intervention is usually less direct. The government can begin from the most useful act of easing the sector’s tax burden. This would benefit not just the mining sector, which is one of Armenia’s greatest export areas, but also agriculture, and why not tourism and health care as well? The other kind of intervention that is exactly within a government’s purview is choosing to build enabling infrastructure to help a sector – roads, reservoirs and irrigation systems for agricultural enterprises, public rest areas and signs and lighting for the tourism sector, power generation centers for all sectors – and thus make them more competitive and profitable. Finally, a government can intervene directly to ease customs and tax processes thus helping business in general. Smooth, fast, predictable tax and customs processes foster business growth, which in turn creates jobs and increases the pool of tax-paying citizens.

In the big picture, this unofficial vote count tells us that we want to mitigate or perhaps even reverse the post-independence rush to put a great distance between public and private. With privatization came the conviction that government must leave business alone to its own fate, that a free market doesn’t just mean that government doesn’t own business, it also means that government and business operate each in their own way, meeting their own needs, solving their own problems, separately of each other.

To some extent, World Trade Organization membership does indeed limit a government’s ability to intervene and benefit the private sector. For example, a government can’t support local production by assessing additional tariffs on foreign production. A government must limit direct subsidies.

But there are no limitations on changing the way a government thinks about its responsibilities towards the private sector. The inarguable right – not just responsibility -- of the government is to create a conducive environment to do business: removing artificial, unrealistic tax burdens, eliminating corruption and monopolies, fostering an even playing field.

In other words, the crisis can force us to consider a more compassionate, inclusive, cooperative relationship between business and government, rather than the cold, textbook, laissez-faire capitalism that we latched on to in the heady days of independence. It is time to take the middle road, to encourage a public-private partnership and cooperation that, in the end, can only strengthen both the private and public sectors.

 

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