Market economies cannot perform effectively if people fail to have well-enforced, well-protected, and well-established property rights, a factor that highly lies within the heart of the “invisible hand” by Adam Smith and the Coase theorem (Holcombe, 2006). According to Whinston and Segal (2010), without the property rights, people will have fewer incentives to make investments and have more incentives to steal and loot. For instance, in countries such as Cuba, among other communist countries, the growth in the market economy has enormously been hindered. This is due to the fact that their societies lack individual’s private property that can stimulate the overall economy(Holcombe, 2006). Some of the properties include real property, such as land, corporate ownership, and intellectual property among others. For instance, in the U.S., the protection of intellectual property by the government has encouraged the innovation and invention, hence fast economic growth (Jilla, 2012).
The role of the government in the market economy cannot be underrated. Reznik (2011) argues that, in most cases, the role of the government is not taking the place of the existing market but improving the overall functioning of its market economy. Further, economists urge that any decision taken by the government to intervene or regulate the market economy should carefully balance the costs of these regulations against the benefits to be attained (Whinston and Segal, 2010). There are many instances where government intervention is ideal for any economy to be productive. Some of these areas include the public good, such as national defense, pollution and external costs, education and external benefits, as well as legal and social framework among others. I strongly feel that the regulation of these areas is critical as it cannot be provided by individuals and is important to all people regardless of their income levels or status in the society (Jilla, 2012).
It is crucial to indicate that the private sector can effectively regulate itself without any government intervention (Holcombe, 2006). This is evidenced by the fact that most private companies have come up with policies all aimed at protecting public interests, such as carbon trading. In order to effectively regulate themselves, private sectors should adhere to policies ensuring good practices, protecting the right of all existing and potential customers, as well as participating in the community-based activities (Whinston and Segal, 2010).