Government Intervention

To what extent do you agree that governments should intervene to block the takeover of businesses which are strategic importance to a country regardless of the benefits to shareholders? Government intervention is an action taken from the government that alter or change economic activeness, supply ability, and the unconstrained decisions made through normal market trade. One of the main reasons governments intervene is because they believe that something in the market is not going the way it should be, e.g. a company becoming a monopoly, or price fixing. IT could also be to save a market.

One example of the governemnt intervening is with the bank Northern Rock. In the recession of 2008, it was anounced that Northen Rock would be going into administration. The reason for the government intervening is because without this, there would have been a large amount of job losses, also combined with a lot of people losing their investmnet and savings in the bank. It was essential for the country for this to happen otherwise it could have put the country into a deeper recession. This can be seen at the expense of share holders, BUT at THE OTHER HAND it can be seen as benficial to the shareholders because when the government bought the bank, it would have bought the majority of shares, and as shareholders it would have been very hard to sell the shares.

Another way the government intervened was to break microsoft up from what it thought to be a monopoly to subsidaries. The reason for this was to benefit the country BECAUSE it was believed that they were a monopoly. This would be bad for the market because it means that it is not very competitive and would be bad for customers. This is at the expense of shareholders because it means that their shares are going to be worth less, as the business is small and will be worth less.

To conclude, I believe that sometimes it is necessary to intervene in some markets because left alone it there is no proof that the market will succeeed, e.g. northen rock and microsoft. Without government intervention it is uncertain what could have happened to those markets, and the effect it could have had on the country. At the same time, a market should not be intervened by the market all the time as it limits the amount a market can grow, and it could be a disincentive for businesses to innovate as they may feel if they get larger, than the government may try and intervene.