These are policies attempted by the government to increase the country productivity, therefore shifting the aggregate supply right (Gillespie 2016, p.409). The policies include free-market: these are the ones that aim at increasing competition in the supply side of the market. They include privatization, reduced union powers, lower income rates of taxes and deregulation. Also, interventionist policies of supply-side: these are cases where the government comes in to solve issues of market failure. For example high government spending in communication and the transport sectors.
Advantages of the Supply Side Plans
According to the theory the supply side strategy should lead to high productivity hence, shifting the long-run supply right. Therefore, these plans enhance the following benefits;
v Lower inflation rates: the shifting of the aggregate supply rightwards lowers the price levels. Thus, by making a more efficient economy, the policies will reduce inflation cost push.
v Lowers unemployment: the policies contribute positively to reducing real wage unemployment.
v Leads to Economic Growth: the interventions in the supply side increase the economic growth sustainable rate through increasing the long run supply aggregate (Tragakes 2011, p. 342).
v Improves trade and Balance of Payments: through making industries more productive hence competitive, they will be able to produce more for export.
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Disadvantages of Supply-Side Policies
ü Over the recession period, the policies cannot be able to track the problem due to lack of the demand side.
ü The policies also require a lot of time for their impact to be felt for example the education impact can take up to 20 years to effect.
ü In some cases, the policies can counter production. In the case of a flexible labour market, the systems reduce the costs of doing business, but they lead to work insecurity and workers maybe demotivated hence stagnate labour productivity.
Examples of the Policies
Free Market-Oriented Supply-Side Policies
Privatization: It is where the government sells stated owned properties to a private sector. It is believed that the private sector is effective in doing businesses as they are profit-oriented hence they reduce production costs and have well-developed services.
Deregulation: It involves doing away or reducing entry barriers, hence allowing new firms and enterprises to come into the market. It is aimed at improving and making firms more competitive. Competitions lower prices and improve quality.
Reduced taxes on Income: Lower taxes on income motivate individuals to work harder, increasing labour supply hence output (Blöchliger et al. 2016, p23-47). Also, a reduction in corporate taxes will make firms to retain more profits that they can reinvest.
Deregulation of Labour market: Policies such as zero hour contracts, minimum holiday pay, easy hire and worker fire deregulate the labour market. In cases where hiring and firing of workers are cheap, firms will be encouraged to absorb workers, therefore, creating employment opportunities. Although in some cases the labour market flexibility may increase uncertainty and lowering worker productivity.
Reduced Powers of Trade Unions: This entail rules and laws that reduce the capability of trade unions from going on strikes. They aim at increasing firm efficiency, reduce cases of real wage unemployment as labour markets will be competitive (Publishing et al. 2013, p. 50).
Reduced Benefits of Unemployment: It will make unemployed individuals take up jobs. In other cases, it will be an incentive to workers to work for long hours.
Deregulation in the Financial Market: It will enhance competition in the money market, leading to lower costs of borrowing funds.
Increased Activities of Free Trade: Lower export duties expand trading activities and will be an incentive of investment for exporting firms.
Encouraged Immigration: Free cross-border movement of labour help firms to gap labour shortages either skilled or unskilled. The policies of immigration increase flexibility in the labour market hence during boom seasons firms can keep up with the increasing labour demand (Wadsworth et al. 2016, p34-53). The case is different with countries with low wages as more of the skilled labour move abroad in seek for good pays.
Interventionist Policies in the Supply Side
Education and Training: Good education improves the productivity of labour hence an increase in the aggregate supply. In the free market, the education is underprovided causing market failure. The government is required to intervene and offer to subsidize in the training and education schemes. In some cases the interventions of the government may be costly, increasing taxes and needs more time to be efficient.
Transport and Infrastructure Improvement: Poor transport network leads to market failure through congestions and cases of pollution. The government expenditure to improve links to transport will reduce congestion in cities and pollution hence doing away with market failure (Glanville and Glanville 2011, p. 316). Better transport lowers costs of transportation, therefore, attracting investors. In the United Kingdom bottlenecks around the rail, air and road transport are the stumbling blocks to the country's economy.
Better Healthcare: Time lost in nursing ill-health adds substantial costs to business. Therefore, improved national health leads to higher labour productivity.
Supply-Side Policy Application in the United Kingdom
After the 1979 elections, Mrs. Thatcher's party introduced the supply side strategies to challenge the consensus of the post-war as well as implement a free market in the United Kingdom.
Economists support the supply side economy, Mrs. Thatcher got impressed by intellectuals such as Friedman and Hayek. They played an essential role in social democracy and interventions of the government by arguing that the free market will be more effective and economical compared to state-intervention.
The economic problems that the country faced in the 1970s renewed the interests in seek for alternative solutions due to the consensus of post-war that seemed to work against high inflation, unemployment, industrial strikes and a backward economy. The Reforms include:
Financial Deregulation: The building societies in the 1980s were deregulated and permitted to be profit-making financial institutions. Rules like derivatives led to deregulation of liquidity ratios that led to the growth of financial instruments.
Privatization: It was the primary policy campaign of the conservative party during the 1980s. It involves selling off government-owned properties to the private sector (Gillespie 2013, p. 381). It was a way of increasing efficiency in industries as well as raising revenue through property ownership democracy. Privatization took place in sectors such as electricity, airways, water, and gas.
Deregulation: It is a way of creating competition for monopolies owned by the state (Gillespie 2014, p.348). Before Royal mail was a parcel and letter monopoly but with the entry of private firms in the logistics industry changed the operations of Royal Mail. There were notable changes in the telephone industry as well as electricity due to competition.
Competitive Tendering: Public services are natural monopolies. Therefore, the government comes up with public service where competitive tendering was adopted. The private organization could make bids to run some services over a given period. Through franchises, the railway was privatized (Rémużat et al. 2017, p9-18).
Reduced Trade Union Powers: The ruling party hindered trade unions from engaging in strikes as Thatcher reforms gave trade unions fewer powers. Also, structural changes in the economy limited the trade union powers.
Tax Cuts on Income: The conservative’s party cut taxes on income from 83 percent to 40 percent. It was based on an argument that it could encourage works hence productivity would increase.
Unemployment
Monetary and Fiscal Policy in Controlling Unemployment
The conservative party was reluctant in supporting backward industries like steel and coal. Mrs. Thatcher supported laissez-faire philosophy. In 1981 the attitude towards unemployment was the same. About 365 economists drafted a letter condemning the government to the times about its policies on the economy. On the other hand, Thatcher held to her belief that it was essential to control the industrial money supply.
Interventionist Supply Side Policies in reducing unemployment
The United Kingdom since has applied supply-side strategies in the attempt to end and curb the ever growing rates of unemployment. They include improved education and training; they give skills that aim at helping the unemployed labour to find and retain jobs in the ever-changing labour market. It lowers structural unemployment, but it also depends whether the skills are relevant.
Ø Unemployed training: it gives citizens confidence during job interviews as well as improving their CVs. It is vital as it targets those who have sought employment for long and those who have lost hope.
Ø Better information about a job; It does away with frictional unemployment. It focuses on people on the course of seeking employment.
Ø Subsidies on employment: a government incentive to firms that take employees that have stayed for long without jobs. It would give the unemployed for long a chance.
To conclude in the case of unemployment the supply side policies are efficient compared to monetary and fiscal policies as it does away with unemployment due to fall in the aggregate demand (Xiao 2017, p 17).In cases of recession monetary and fiscal policies will be needed in fostering economic activities and creating job opportunities.
References
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Gillespie, A. (. O. B. S. A. A., D. (2013). Business economics.
Gillespie, A. (2014). Foundations of economics. Oxford [u.a.], Oxford Univ. Press.
Gillespie, A. (2016). Foundations of economics. Oxford University Press.
Glanville, A., " Glanville, J. (2011). Economics from a global perspective: a text book for use with the IB diploma economics programme. Dolton, Glanville Books.
Publishing, O., Moran, V., " Borowitz, M. (2013). Waiting Time Policies in the Health Sector. Paris, Organisation for Economic Co-operation and Development.
Rémuzat, C., Dorey, J., Cristeau, O., Ionescu, D., Radière, G. and Toumi, M., 2017. Key drivers for market penetration of biosimilar in Europe. Journal of market access " health policy, 5(1), p.1272308.
Tragakes, E. (2011). Economics for the IB Diploma. Cambridge, Cambridge University Press.
Wadsworth, J., Dhingra, S., Ottaviano, G., and Van Reenen, J., 2016. Brexit and the Impact of Immigration on the UK. CEP Brexit Analysis, (5), pp.34-53.
Xiao, L. (2017). New supply-side economics: the structural reform on the supply side and sustainable growth. http://public.eblib.com/choice/publicfullrecord.aspx?p=4980408
