Government Explained Simply

Government Explained – All You Need To Know

In this post, we’ll unpack all you need to know about government, defining exactly what it is, its role, its main functions, the different types of government and more.

What Is Government?

A government is an institution that holds the exclusive power to set and enforce certain rules of social conduct in a given geographical area.

The Role Of Government

The government’s role is to act as referee. It is essential both as a forum for determining the rules of the game and as an umpire for interpreting and enforcing the rules decided on.

However, the source of a government’s authority is derived from the consent of the governed. This means that the government is not the ruler, but the servant of the citizens. As such, the government has no rights except the rights delegated to it by the citizens for a specific purpose.

What Are The Functions of Government?

The proper functions of a government fall into three broad categories. Firstly, to protect the nation against foreign aggression. Secondly, to protect its citizens from domestic criminals. Thirdly, to establish and maintain an objective legal system for resolving disputes.

The 3 Decisions A Country Has To Make

A country has three decisions when selecting its approach to governance.

Firstly, it must determine whether decisions are made from the bottom-up (Democratic) or top down (Autocratic). Secondly, it must determine whether it is capitalist or communist. Thirdly, it must determine whether it is individualistic (which prioritises the well-being of individuals) or collectivist (which prioritises the well-being of the collective).

What Are The Types Of Governments?

Governments across the world manifest in various forms.

Democracies are characterised by the rule of the majority where citizens exercise power directly or elect representatives. Autocracies are characterised by the concentration of power in the hands of a single individual who exercises control over the state without being constitutionally responsible to the public. Monarchies are characterised by a single familial line that inherits leadership, often symbolised by a king or queen. Oligarchies are characterised by the control of a country by a small group of powerful individuals or families. Totalitarian regimes are characterised by the centralisation of authority under a single party or leader.

“Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” — Alexis de Tocqueville

Market & Government Failures

Market failures occur when the free market fails to allocate resources efficiently.

It is the role of government to correct market failures through interventions, ensuring a more efficient distribution of resources.

Government failures occur when the government, through intervention, fails to allocate resources efficiently.

Taxes & Regulation

Excess taxes discourage effort and encourage evasion. Excessive regulations decrease competition and increase prices.

Inclusive Versus Extractive Institutions

Political institutions are fundamental in determining economic outcomes. There are two types; inclusive institutions and extractive institutions.

Inclusive institutions benefit the majority. Extractive institutions benefit the minority.

Inclusive institutions are institutions that distribute power and recourses. Extractive institutions are institutions that concentrate power and recourses.

Inclusive institutions incentivise participation and productivity. Exclusive institutions incentivise exploitation and rent-seeking.

Inclusive institutions facilitate technological progress that leads to prosperity. Extractive institutions limit technological progress that leads to poverty.

Inclusive institutions create a positive feedback loop by creating conditions that foster innovation. Extractive institutions create a negative feedback loop by creating conditions that stagnation.

Inclusive institutions are sustainable. Extractive institutions are unsustainable.

It’s important to note that inclusive institutions require a centralised state to set and enforce rules and property rights.

Inclusive Versus Extractive Institutions Table Summary

InclusiveExtractive
Benefit MajorityBenefit Minority
Distribute Power & RecoursesConcentrate Power & Recourses
Incentivise ParticipationIncentivise Exploitation
Create Economic GrowthDestroy Economic Growth
Lead To ProsperityLead To Poverty
Create Positive Feedback LoopCreate Negative Feedback Loop
SustainableUnsustainable

Summary (TL;DR)

A government is an institution that holds exclusive power to set and enforce certain rules of social conduct in a given geographical area.

Its role is to determine, interpret and enforce the rules of the game. Its three main functions are to protect the nation against foreign aggression, to protect its citizens from domestic criminals and to establish and maintain an objective legal system for resolving disputes.

Types of governments include democracies, autocracies, monarchies, oligarchs and totalitarian regimes.

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