With the advent of globalisation, businesses today are operating across the boundaries and are therefore influenced by the national governments to a greater extent. This influence is witnessed by the efforts made by various governments to increase the cross border business activities. This is achieved by setting up laws and regulations to further control business activities. National Governments encourage business activities through subsidiaries and providing support to them as establishment of subsidiaries further boosts the economic activity of the nation. Government controls the taxation and spending
How the Government influences business activity today:
a. Employment policy: It is instrumental for a small amount of unemployment to be present in the economy, so that jobs are created for people. Hence, The UK Government has put down some ground-rules to curb unemployment to this safety level. The Government helps those unemployed to identify jobs, and has workshops through out the country for identifying their requirement. The Government has also introduced a policy called “New Deal”, which aims at offering unemployed youths training programmes, and providing them with experience in Government funded programmes.
b. Commerce Policy: Government identifies certain industries that are instrumental to the economy and provides them with subsidies. Subsidies are a freehold provided by Government, for an industry that produces consumer necessities, like Agriculture, Oil, and other such necessities. The Government allows the companies to sell the product for less than Marginal cost of manufacturing/processing the product, and in turn, provides these firms with cash incentives. This promotes the product in the view of the public, hence, is favourable to the business.
On the other hand, companies also levy additional taxes for industries that are potentially harmful to the society. For example, the Cigarette industry is levied a huge amount of taxes to prevent sales of Cigarettes to the public, due to the knowledge that these products do not benefit the society.
c. Inflation policy: The Government, along with the Central Bank sees to the fact that price appreciation in a country is in a smooth fashion. This is done with the help of monetary policies. Expansionary Monetary policies help in adding liquidity in the financial markets, which gives rise to inflation. This is used when the market has been in a recession, with stagnating inflation rates. On the contrary, Central banks could use recessionary monetary policies that would reduce the money supply in the Market. This would also reduce Inflation. This is done in cases where market has grown more than the sustainable growth rate. Another way is to change the Borrowing rates (Interest Rates) in the markets. If Borrowing rates are sufficiently high, there would be shortage of money in the market, which would reduce the level of inflation, and vice versa. The Government will try to bring the inflation levels to that which is sustainable in the long run.
Inflation is very important for the Businesses, because revenues have a very high co-relation with inflation rates. Also, businesses need to constantly borrow funds from the public. Interest Rate changes would have a pronounced effect on their investments.
d. Education and training policy: Government has been giving a lot of importance to Education in the United Kingdom. These include free education, and inclusion of diverse subjects in the curriculum. This indirectly helps businesses, because, as a result of improved education, a highly skilled workforce is developed. This helps in increasing the efficiency of the business.
e. Taxation policy: The Government sets corporate tax rates for Businesses, so that they pay their taxes. This way, a Firm can make its contribution towards the society. As a result, Government uses these receipts for Economic growth and Development. Paying taxes help these businesses to streamline their processes, as a result of more efficient infrastructure and management. The taxes paid also assist in supporting backward countries, so that overall demand of their products is not only restrained to UK, but includes exports to these nations too.
f. International policy: The Government has a strong hand in building relationships with other countries. A strong relationship promotes exchange of goods between the two countries and improves bi-lateral relationships. The Government can also impose heavy excise tariffs to discourage imports, which could potentially reduce revenues of inland companies.