Over the course of history, the government has been obligated to intervene with the market place in many different situations. Typically, the government interferes in order to reduce market disproportions, promote overall economic equality, correct a market failure, or to improve economic performance. It is able to affect the market by adjusting factors such as market regulation, subsidies, taxes, and state ownership. Throughout the period between the years 1992-2000, there were a few government actions in the market place that stood out. The Telecommunications Act of 1996, the North American Free Trade Agreement (NAFTA), and the Federal Agriculture Improvement and Reform Act of 1996 (FAIR) were all significant examples of the government’s ability to enact legislature in an effort to have an influence on the market economy.
The period 1992-2000 was Bill Clinton’s presidential administration. One major defining factor of that time period was public access to the Internet, which had previously been a scientific, educational, and military communications network. Therefore, the Telecommunications Act of 1996 was a significant instance of government intervention in a market. This act exemplified a shift in American telecommunication law. Its goal was to allow anyone to become a part of the communications business, and to permit every communications business to compete in any market against each other. The primary goal of this specific legislation was to deregulate the broadcasting and telecommunications markets. Deregulation is the removal of governmental authorities within a particular industry in order to create more competition within it. This specific intervention was legislative, and was endorsed through these newly-introduced laws. One of the major purposes of this 1996 legislation was to promote competition amid media companies that use similar types of technology. This act also removed regulatory barriers to entry, which are high costs or additional obstructions that avert competitors from entering a specific industry easily. It was the first enactment to be signed electronically. The act reflects the Congressional goal “to accelerate the deployment of an advanced capability that will enable subscribers in all parts of the United States to send and receive information in all its forms-voice, data, graphics, and video-over a high-speed switched, interactive, broadband, transmission capability,” (Brotman, 2). It also generated individual regulatory regimes for different types of electronic communications. Federal telecommunications regulations have sizable expenses “These regulations cost consumers at least $25 billion annually in forgone consumer surplus, or as much as $100 billion if one includes the wealth transfers as a cost to consumers,” (Ellig, 53-56). The Telecommunications Act of 1996 was mostly beneficial to consumers because it created competition among producers, and it allowed these companies to go head-to-head for the first time to strive for the attention of consumers in the media market. Overall, it is a clear demonstration of how the government is able to interfere in a market.
While this act tried to introduce the idea of competition and free entry into the telecommunications industry, many believe that it was unsuccessful in doing so. According to the United States Telecom Association, broadband providers have made $1.4 trillion in capital investments since 1996. However, this legislation was certainly not a success right off the bat because there were too many telecommunication companies in operation. Over time, however, the amount of companies in the industry began to decrease due to the competition that was created by the government. Still, the 1996 act failed to deliver the level of competitive incentives that it was designed to offer. Instead, “the telecommunications industry was steeped in $165 billion of debt and plagued by plummeting stock values only a few years after the passage of the act,” (Atkin, 118-120). Although this legislation was successful in creating additional competition among producers in the telecommunications industry, it revealed that the 1996 legislation was not on a large enough scale to create a substantial difference in this specific market at the time.
Another instance of government intermediation during this period was also a piece of legislation that was put into place by the Clinton administration. This act was the North American Free Trade Agreement, also known as NAFTA. NAFTA was an agreement that removed all trade barriers between Mexico, Canada, and the United States, essentially producing the world’s greatest free trade region. It was able to terminate the standing tariffs that existed between the three countries, in an effort to benefit all of the nations involved. Signed in December of 1992, the North American Free Trade Agreement set a 15-year time frame for unrestricted commerce between Canada, Mexico, and the United States. NAFTA was a legislative intervention that was aimed at encouraging trade between the countries involved and furthermore, to benefit their economies by creating the largest-scale free trade zone of its time. This agreement was remarkably rational considering the statistic that these nations are each other’s leading trade affiliates. In fact, “about one-fourth of all United States imports comes from Canada and Mexico, which are the United States’ second- and third-largest suppliers of imported goods. In addition, about one-third of U.S. exports are destined for Canada and Mexico,” (Fontinelle, 1). The United States’ leading imports from these countries included crude oil, machinery, gold, vehicles, produce, livestock, and processed goods. On the other hand, their most predominant exports to Canada and Mexico were machinery, vehicle parts, mineral fuel, and plastic products. NAFTA allowed these goods to be circulated among these nations drastically easier. All in all, this agreement is a clear model of government intercession in the free-trade marketplace among other countries. While the goal of NAFTA conveys an impressively optimistic image, it is undeniably debatable whether or not it was entirely successful at fulfilling its purpose.
There are many pros and cons that have been established regarding the North American Free Trade Agreement. At first, the agreement executed its purpose fairly well. Regional trade improved drastically and nearly quadrupled during the first decade of the passage of the act. NAFTA also created a direct decrease in prices of products, and decreased the reliance on the Middle East for oil that the United States once had. However, one of the largest secondary costs of NAFTA would have to be the job loss that occurred in the United States. Between 500,000-750,000 jobs were lost in the U.S. over time as a direct result of NAFTA, (Amadeo, 1). Additionally, migration significantly suppressed American wages. Ultimately, the shortcomings are very apparent. Nevertheless, I personally believe that NAFTA was an economic success because it contributed to developing the United States into the strong market competitor that it is known as being today.
Another act that demonstrates government interference in the market place would be the Federal Agriculture Improvement and Reform Act of 1996, or FAIR. The government created this act in order to aid farmers by setting price floors in the agriculture market on certain crops. Having a price floor means that the government prohibits a product to be sold for less than a price below the minimum value that they set. In order to be successful, a price floor has to be set higher than the equilibrium price for the particular product. Specifically, FAIR was a form of legislative intervention. Its main purpose was to end the use of target prices and deficiency payments (Arnott, 99-112). Target prices are the projected values that customers are willing to pay for a certain good or service. Deficiency payments are the checks that are sent to manufacturers to make up the variance between actual market price and the target price. Essentially, this legislation was enacted to end the programs of price support for crops and to safeguard farmers through the transition. In 1998, crop prices began to rapidly decrease, forcing Congress to pass an emergency relief program that increased farmers’ income. It raised subsidy payments significantly. A subsidy payment is typically a payment or tax reduction given to aid in an economic setback, and to promote public economic interest. These farmers received the payment in an effort to specify total yearly payment from 1996-2002. It also limited subsidy availability to wealthy farmers, which helped to protect the struggling farmers. “Cumulative outlays for contract payments for the fiscal 1996-2002 are fixed at nearly $35.6 billion,” (1996 FAIR Act, 2-4). Each individual crop’s payment level was adjusted, excluding rice. In order to be able to receive these payments on program commodities, the farmers had to enter into a “production flexibility contract,” a seven-year contract that covered crop years 1996-2002, sanctioned by the 1996 farm bill between the Commodity Credit Corporation and farmers, which made fixed income support payments. This act of legislation was a prime example of the government authorizing a price floor.
Overall, FAIR was not an extremely successful example of government intervention in the market place. This legislative enactment proved to be ineffective over time. At first, it succeeded in its intentions, but the need for a greater action to be taken began to rapidly become apparent to the government. Congress was forced to pass a farm bill that increased subsidy payments to $40 billion later on in 2008, in an effort to make a change. The government still plays a large role in the agricultural industry in an effort to reduce income instability for the producers.
Conclusively, there are many instances of governmental involvement in the marketplace. Throughout the years 1992-2000, the Telecommunications Act of 1996, the North American Free Trade Agreement, and the Federal Agriculture Improvement and Reform Act of 1996 were each substantial exemplars of the government’s ability to have an impact on the market place. Personally, I believe that the government will continue to enforce legislation that significantly influences markets in an effort to improve different industries in the United States. While these attempts are not always successful, they can eventually prove to bring many benefits to the economy.