Government Politics and the Effect on GDP

Throughout history, political commentators and theorists have speculated upon many often-contradictory definitions of government politics. It is, amongst other things, a subjective topic of conversation that brings out the best and worst in people when they confer about the many different political ideologies that exist.

Defining Government Politics

It is challenging to offer a single definition of politics upon which everyone can agree. The topic of politics means that a contextual framework reference is needed to define and organise the subject into a form of subjective meaning concerning how politics can be explained. To explore the broader definitions of politics, we can split the definitions into four principal areas:

• Monarch: A monarchy is a government form in which a person is defined as the monarch, or head of state, which may or may not be in the form of a representation of being a symbolic or constitutional head of state or a formal legitimate political authority position with real, and actual power in the running of state affairs. The monarch's role can vary from being restricted to a fully autocratic or absolute position as head of state involving judicial, legislative, and executive domains. The monarch holds their position for life or until their abdication, and succession is hereditary. However, elective and self-proclaimed monarchies have been prevalent throughout history.

• Democracy: a system of government where people are elected by the electorate through the rule of the majority so that a government can be formed in which the vested power is supreme and absolute. The electorate holds power by exercising its wishes by collectively voting for people or groups of people, more formally known as political parties, either directly or indirectly through a system of representation, whichever best matches their view of how the country should be run. Democracy has evolved from a time when communities made decisions locally through popular assembly to the dominant form today, where democracy is defined as representative in which the electorate votes for the type of government to govern on their behalf. This can be through a parliamentary or presidential format in which the majority rule is applied. However, plurality, supermajority, constitution, or consensus rule can be used in other cases.

• Totalitarian: is a government and a political form that prohibits any form of opposition, outlaw's individual and group opposition to the state, which can exercise a varying form of an extreme and comprehensive form of authoritarianism, to an extremely high degree of control and regulation over a country's population in both their public and private life. In totalitarian states, a dictator often holds total and supreme political power in which tactics control all-encompassing campaigns through state-controlled mass media broadcast propaganda, to control the population's free and independent thinking and ideology, to stifle rebellious thoughts.

• Authoritarianism is a system of politics that rejects democracy and free expression, which involves using centrally controlled absolute power to preserve the political status quo. Authority is less invested in the rule of law, separation of powers, and democratic voting, with many typologies describing the variations of authoritarian forms of government. Regimes may be either oligarchic or autocratic and may be based upon the rule of the military or politics. Some constitutions blur the meaning and boundaries between authoritarianism and democracy, describing them as competitive authoritarian or hybrid democracies.

What is important is that government policies are characterised by the decisions and actions that governments enact at various levels in diverse ways to achieve specific political goals and aims. These political goals and aims or policies can affect many other aspects of society, including the economy, demand and supply characteristics of trade in terms of import and export, a country's balance of payments, businesses, and the overall welfare of a countries populous.

Government Fiscal Policies
 
Governments that are essentially formed through totalitarian or authoritarianism-based politics have goals and aims that can be, although only sometimes, centred on the ruling elite's needs, aspirations and ideologies. The needs of society often take second place. They are governed so that societal needs are replaced with a sense of total and absolute allegiance to the ruling elite, often at the expense of the well-being of the populous at large.

Countries that are ruled by a monarch may have politics that are centred along a continuum of totalitarian or authoritarianism-based politics at one end of the political spectrum, to being a full democracy at the other. During the latter half of the 20^th century, the world saw a polarisation of political systems between communism, totalitarianism, authoritarianism, and democracy. In many cases, the polarisation of political ideologies has led to wars, or at least a profound sense of uneasiness, as evidenced by the European Cold War between the USSR and Europe in the 1980s and 1990s.
 
The breakdown of the USSR increased the democracy of the political landscape in some of the former states of the USSR, with some states embracing political democracy in full. At the same time, some accepted it in limited ways. Democracy allows people to choose the political system within their country through the use of voting and free speech, in which people are free to express their thoughts and political ideologies to anyone who will listen. The freedom of choice allows people to decide on the levels of public services to be provided through the magnitude of taxation that they judge to be fair, at least in a limited way.
 
As distinct from the government, the micro definition of politics is defined as that which concerns the state. The state forms the government departments and quango’s that provide and manage the country's public services, enforces law and order, ensures national and international security and supplies for the governance of the country's general administration.

Evolving Political Ideology
 
Conversely, the government comprises politicians who temporarily, through being elected, run the state and determine the public services that should be provided, the laws it must enforce, the level of national and international security that must be executed and all other purposes that the state must provide and administer. A more expansive definition of politics concerning the state might include the following:

• Activities that either involve or directly affect the institutions of the state.

• Individuals and politicians who directly manage the affairs of state.

• Those directly involved in the organisation of governance.

• Locations in which these activities and people operate.

A government's policies are used to address the issues of social welfare, economic growth, national security, and international relations. Government policies are principles, guidelines, and rules a government develops to achieve its goals or address specific issues. The policies are created through a democratic elective process and are enforced by government agencies, and can affect businesses in a way that can be divided into two categories:

• Microeconomic policies that affect legislature, tax, and industrial regulatory processes.

• Macroeconomic policies that affect the economy, business, and fiscal trading patterns.

Within the UK, HM Treasury manages fiscal policy, the economy and finance to implement economic policies and strategies that ensure sustainable economic growth through public spending, financial services, and the business and personal tax regime, sporadically using the delivery of infrastructure projects. A government's monetary and commercial aims are usually centred around six vital objectives:

• Manage public finances efficiently and effectively.

• Stimulate and increase economic growth, both nationally and internationally.

• Ensure a stable macroeconomic environment through the growth of supply and demand.

• Achieve and support full employment.

• Ensure economic trade and price stability.

• Increase and manage the balance of payments.

The Need for Economic Growth

The foremost crucial goal is achieving economic growth. Economic growth is measured by the annual change in the percentage of a country’s Gross Domestic Product (GDP) as the increase or decrease in the value of national output, considering national production and labour efficiency. Sustainable economic growth is vital to ensuring a country's economic performance. It contributes to increased economic trading activity and a lower unemployment rate that can be utilised to raise tax revenues and boost public spending on welfare and infrastructure projects to stimulate further economic growth. Governments can stimulate additional economic growth through demand and supply policies:

• The demand-side stimulus includes national and international fiscal and taxation policies, such as increased public spending promoted by reduced taxation and interest rates through prudent monetary policies.

• Supply-side policies include interventionalist and non-interventionalist policies. Interventionalist policies confer more control over fiscal and economic activities to the government. Examples include increased funding for infrastructure, education, and training. Non-interventionalist policies increase the importance of the market in economic growth and include policies such as tax cuts, free-market agreements, privatisation, and deregulation.

• Demand-side policies aim to increase aggregate demand (national expenditure). In contrast, supply-side policies improve aggregate supply (national output) and productivity.

The balance of payments of a country is a record of its international trade through foreign currencies made by organisations based in the country. Foreign trade is crucial to enable countries to trade with each other, as it allows for the international trading of currencies in exchange for imports and exports and has been a method by which taxes have been raised through the imposition of trade tariffs to protect internal industrial and economic markets from cheaper foreign products and services.

The Need for International Trade

International trade has its peaks and troughs, meaning that a country's balance of payments should balance out over the long term but may become erratic in the short term, implying that the balance of payments of a nation can be both negative or in surplus when countries have purchased more from abroad than they have exported, or vice versa.
 
A country needs adequate sources of foreign currencies to allow international trade. Currency shortages will mean a country may be forced to buy foreign currency on the exchange markets or trade with other countries while enduring an unfavourable currency exchange rate. The primary concern for a government is to ensure that the exchange rate for its currency is stable but trades at a level that allows imports to be balanced with the cost of exports to stimulate international trade so that products and services can be bought in locations where they can be supplied at least cost.

A country’s balance of payments is a record of all imports and exports recorded in the currency they were made over a predetermined period. A country records these transactions in three ways through its:

• Current account records the value of the import and export of goods and services.

• Capital account that records international financial currency transfers.

• Financial account in which international investments, bonds, stocks, and property transactions are documented.

The increase in the level of global trade has, at times, increased macroeconomic liberalisation within many developing third-world nations to create a trading boom and bust economic cycle, leading to many countries to lift restrictions to maximise the advantage of the currency inflows due to the export of products and services through these financial account transactions. However, many economists believe that lifting trade restrictions will eventually lead to an economic crisis in emerging markets. This threat is currently envisaged within many Asian countries.

Many Asian countries implemented restrictive macroeconomic trade policies, with regulations preventing foreign ownership of Asian national financial and non-financial assets, limiting international foreign currency transfer. With the liberation of Asian capital and financial accounts, currency market trade increased, allowing more sophisticated and transparent investors to boost direct foreign investment within Asian markets. The investments and rise in international trade increased Asia’s GDP through increased domestic production and manufacturing volumes. They facilitated a reduced risk by allowing a greater diversification of trading activities in a diverse international market.

Government Spending to Increase Economic Recovery

The government’s policies on taxation and spending can affect a country’s level of output and employment through the distribution of economic consumer and business spending. The net effect of the government's positive changes in taxation is typically seen as a stimulus to society’s financial resources and spending. Government’s will act to regulate the overall aggregate economic demand within the economy through its taxation policies to regulate the effects on household expenditure, national economic trading levels, and exports to control inflation, which can either have a positive or negative impact on the amount spent within the economy.
 
An often-interlinked goal of government is to increase employment rates to supply more jobs and reduce unemployment. A reduction in output or an increase in unemployment can create an unsustainable strain on a country’s economy by lowering the living standards of unemployed people and limiting the general wage increases of the employed, to decrease spending in the economy.
 
A government fiscal policy designed to increase the consumption of products and services is often formulated to increase economic activity within the economy, principally when the private-sector consumption, spending or investment in products and services, is reduced and insufficient to stimulate and sustainably increase economic growth and employment. This is especially prevalent within an economy where the budget is in deficit, and tax receipts are lower than predicted government expenditure.
 
In this scenario, the government may be forced into borrowing to fund the deficit between planned and forecasted revenue and expenditure levels. Fiscal policy is drafted to eradicate the short-term fluctuations in a country’s economic activity. The downside to using fiscal policy to amend economic fluctuations is that fiscal drag can affect the repercussions of events and can take longer than expected to have the desired effect on economic activities.
 
Government spending can be targeted at reducing the inequality of geographical economic activity levels across the different regions of a country, where the local environment is made up of trading markets that work at various levels. "Levelling up” of the lack of economic activity in some regions can be achieved by spending on capital infrastructure projects or public services in areas where the more significant impact of the inequality of opportunity has harmed the local economy, targeting the areas with the highest poverty rates.
 
This type of government spending can be directed at infrastructure projects to increase local employment rates, stimulate spending in the region's economy, and supply a sustainable, more prolonged impact on the regional economy's ability to improve a country’s overall international competitiveness. However, improvements in specific national infrastructure projects encourage negative travel and economic activity externalities.
 
The investment in green technology through the government’s funding of projects and technologies such as wind and wave power, subsidising the design and use of electric vehicles, and supplying vehicle charging infrastructure, as well as alternative heating technology for business and domestic properties will promote the adoption of greener technologies, leading to a less polluted environment.

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