Supply side policies

Market-based supply-side policies

Increased productive potential from allowing markets to operate more freely (less government interference), boosting competitiveness and efficiency​

Interventionist supply-side policies

Government intervention in markets designed to promote factors of production where the free market would fail to do so

Why are Supply Side policies so important for the economy? ​

Long term growth: Increases in AD with stationary AS will eventually see no growth in actual output​
Higher living standards: Policies that increase productivity will lead to a greater output derived from factors of production, and more goods and services to go round​
Non-inflationary growth: Allows output to rise into the long run without increased price level​
Welfare gains: More competition can lower prices, boosting consumer surplus​
International competitiveness: Firms can compete with foreign rivals, boosting net exports​
Budget Balance: Increased profits and incomes will boost tax revenues for government ​

General Evaluations:​

Knock on effects: Supply-side policies which involve increased government spending (e.g. education reforms) may also increase AD​
Recessions: supply-side policies cannot tackle an output gap caused by suppressed AD​
Unemployment: Short term unemployment may occur as capital replaces workers​
Time lag: Policies may take time to have an effect on AS​
Likelihood of government failure: There are a number of cases of poorly administered government supply-side polices which have not had the desired outcome​

Privatisation - explanation

Market-based
The transfer of inefficient state-owned firms into the private sector​
Firms are exposed to competition and face a profit motive, promoting productivity gains ​

Privatisaton - evaluations

Evaluation 1: Limited gains still to be made as most UK government owned firms have already been sold off​
Evaluation 2: Privatisation may just see a state-owned monopoly become a privately owned monopoly - prices increase, quality decreases​

Deregulation - explination

Market-based
Removing legal restrictions on business to encourage competition​
Increased competition for customers, means increased productivity in order to lower prices​

Deregulation - evaluation

Possible disadvantages of excessive choice and deteriorating quality​

Reducing corporation tax - explanation

Market-based
Cutting taxes on business profits​
Firms will have more retained profit to invest, thus increasing the quantity of FoP or their productivity through increased R&D (research and development)​

Reducing corporation tax - evaluation

Money may not be spent on investment. R&D tax credits instead?​

Labour market reforms - explanation

Market-based
Reducing the power of trade unions and other regulations​
Boosts labour productivity, as staff are spending more time at work and less time on strike​
Unions can't longer make unreasonable wage demands, firms can cut costs boosting SRAS​

Labour market reforms - evaluation

any further weakening of trade unions may de-motivate workers​

Education and training - explanation

interventionist
Increased quantity and quality of education and training​
Labour becomes more productive, productive potential will rise​

Education and training - evaluation

Time lag while people train​

Work visas/immigration - explanation

Interventonist
Improvements in the ease of immigration into an economy ​
Increasing the quantity of Labour is an increase in FoP, and thus increases potential output​

Work visas/immigration - evaluation

If other FoP are not sufficient there could just be increases in unemployment​

Public Sector Investment - explanation

Interventionist
Government spending on improved infrastructure such as transport links can boost productivity​
Lower costs of transportation and reduced time spent commuting ​

Public Sector Investment - evaluation

In a crowded country like the UK, it can be difficult to increase transport capacity​

Increased Housing Supply

Interventionist
Building affordable homes in expensive areas can make it easier for workers to move and find jobs reducing geographical immobility​
Firms can suffer from labour shortages in areas that have become very expensive to live in​

Healthcare provison

Interventionist
Firms can face substantial costs from time lost to ill-health​
Health care spending which improves a nation's health can improve labour productivity​