Can the state intervene in pricing in a market economy? The answer to this question will be positive, but it is worth clarifying several important points. State regulation of prices should be ensured only where it is necessary. In other areas, a freely functioning market mechanism will be optimal . In this article, we will try to explain the goals and mechanisms of state intervention in pricing policy.
As you know, a market economy is not developing as spontaneously as it seems. Sometimes it is adjusted in order to more effectively cope with its main tasks. So, we list the goals of state regulation:
- in some areas of the economy there is a natural monopoly. In these cases, free competition is ineffective, and sometimes completely impossible. In order for competitors of natural monopolies not to raise prices, the cost of goods and services is set at the state level. Thus, inflation is reduced, and optimal conditions are created for stable economic growth. It is worth noting that the areas of natural monopolies are fixed in federal laws;
- state regulation of prices is necessary to reduce social tension;
- such a measure enhances national competitiveness in international markets;
- various modernizations are stimulated;
- the main goal is to stabilize social structures and optimize the country's development in the economic sphere.
State regulation of prices is usually applied in such areas as mail, excise goods, telegraphs, customs policy, railway services, taxation, and medicine. Indirectly affected areas such as lending, subsidies.
There are various mechanisms for regulating the economy. Let's try to list the main ones:
- observation by special authorities. The goal is to establish an increase in the value of the consumer basket in order to determine the index of nominal growth of pensions and wages;
- indirect influence. For example, customs restrictions are abolished or introduced , taxation changes;
- intervention in the process. The state authorizes the growth of production costs. This measure inevitably follows price increases ;
- impact on the cost of services and goods in the areas of natural monopolies. Similarly, the state sets prices in those areas where it is the main buyer. For example, this is construction, goods for the army, weapons;
- direct impact. In particular, these are government subsidies that significantly reduce production costs. Consequently, price increases are slowing down or stopping altogether. In addition, there is a state policy that directly affects the value of “excise goods” that are subject to indirect tax ;
- impact on foreign trade prices. It is carried out by reducing or exempting from taxes or by providing special loans and subsidies;
- fixed preferential prices for products manufactured in the state-owned sector of the economy. For example, these are energy, postal telegraph and railway tariffs;
- state regulation of prices can manifest itself in the form of establishing limits on the increase in the value of products. A similar mechanism is used only in extreme cases, for example, with exacerbation of tension in society;
- transfer of price control to international bodies. For example, setting the value for ferrous metals by the European Union of Steel and Coal, fixing prices for agricultural products in the European Community.