GOVERNMENT AND THEROLE AND SCOPE OF ITS SERVICES government outlays are financed.

Through these mediums, individual

desires are translated into binding decisions concerning the extent and
Government is an organization formed to exercise authority over the functions of government
actions of people who live together in a society and to provide financial and
non-financial essential services. Those services influence the day-to-day PUBLIC FINANCE AND ITS CLASSIFICATION
living of the people (Romualdez, Yoingco, &Casem, 1973) as well as the Public Finance,according to Hyman (2014), is a field of economics that
industries. Example of the role and scope of Government’s services are as studies government activities and the alternative means of financing
follows: government expenditure. A crucial objective is to understand the impact of
Construction and maintenance of roads and bridges, communication and government expenditures, regulation, taxes, and borrowing on incentives
power facilities, both for home and industrial uses; to work, invest, and spend income.
Educational and health services; While Romualdez, Yoingco&Casem (1973) defined public finance as a
Peace and order; field of study in economics which deals with the utilization of scare
Fire protection; resources, that have alternatives uses, to satisfy human wants. It is
Subsidies to consumers in terms of lower prices for essential considered synonymous to government finance, public economy, or the
commodities; economics of the public household. Part of economics is to deal with the
Protection to industries like high tariff rates on competing foreign articles; revenue and expenditure patterns of the government and their various
effects on the economy. In other words, it is the study of economics
Level of money supply, the interest and discount rates;
aspects that arise in the operations of the public budget. Previously people
Development of new technologies; see public finance as evil but now it becomes important in the solution of
Financing manpower training; the economic problems of production, distribution, consumption and full
Union and management problems are arbitrated; employment.
Air and water pollution are looked into; Classification of Public Finance:
Production and sale of certain items that impair health; Public Finance is classified into two, namely: Private Finance and Public
Mental facilities are scrutinized; Finance. Both have basic economic goal, that is, the satisfaction of human
Solution to traffic problems; wants, hence they differ with (1) private wants and public wants, (2) the
Construction and maintenance of parks and recreational places; financial means available, and (3) the budgeting procedure practiced.
Promotion and support of cultural and aesthetic endeavors are 1) Private Want and Public Wants
undertaken;
Fertility and mortality rates are looked into; and Private finance relates to private wants while public finance deals with
Price and wage levels are established. public wants. Private wants are those that can be satisfied through the
mechanism of the market because their enjoyment can be made subject
However, to enable the government to engage in the above activities or
to price payments. Consumer can be satisfied with the goods and services
services, it has to raise revenue mainly through imposition of taxes. Many by paying a stipulated price.
citizens and resources are employed in the production of government and Whereas, Public wants are those that cannot be satisfied through the
private industries. They are receiving income yet they need to pay taxes. working of the market because their enjoyment by any individual consumer
In many cases, they are still recipients of services financed by those taxes is independent of his payment or contribution. Meaning to say, one is not
(Hyman, 2014). excluded from the satisfaction of a public want even if he does not pay for
The extent to which individuals have the right to participate in decisions it. Example: Police and fire protection. Even an individual is a payer of tax
that determine what governments do, how much they spend and how they or not, both can avail the police and fire protection services. The road and
obtain the means to finance their functions reflect political interaction of bridges constructed by the government are available to use by anybody as
citizens. long as the government is not looking for a toll payment.
Political institutions constitute the rules and generally accepted procedures Public want is also classified into a social and merit wants.
that evolve in a community for determining what government does and how
Social wants are those wants whose satisfaction should be subject to the possible in many countries, especially in less developed countries. In fact,
principle of consumer sovereignty, that is, resources should be allocated most countries cannot
in response to the effective demand of consumers. On the other hand, even meet the most basic needs of their people like food, clothing and
Merit wants are those thatare subject to the exclusions principle and are shelter, unlike US whose people are capable of satisfying their essential
satisfied by the market within the limits of effective demand. They become needs. If some group cannot, it is the government that provides them with
merit wants if considered so meritorious that their satisfaction is provided basic goods and services. Welfare programs and other social security
for through the market and paid for by private buyers. Example: free
benefits are made available to the less fortunate, and to the aged.
education, low-cost housing, subsidized essential consumer items.
But still, rich countries have economic problems. People, human as they
2) Financial Means Available
are, are not ultimately satisfied with the consumption of basic goods only.
Private finance cannot avail of taxation and printing money as means of Naturally, they aspire for a higher standard of living. And it is the
raising revenue in the same way as public finance. responsibility of the economic system to help the people acquire it. The
However, If the government decides to construct a bridge, it can generate economic system of any nation – United States or Uganda – has three
resources with which to undertake such a project through taxation, printing basic economic problems: What goods to produce and in what quantities?
money, borrowing, or through the sale of assets and services. With respect How to produce the goods? And for whom are the goods produced?
to borrowing, especially in the case of external debt, the government has A. What goods are to be produced?
a decided edge over private entities. In other words, public finance can rely It is not really possible to produce all the goods that people want for their
more heavily on borrowing to augment its resources than in private finance. satisfaction. To remedy such problem, a system of priorities has to be
Whenever a private corporation decides to construct a building, it can float established. Clearly, basic needs of the people are given to priority.
securities (evidence of indebtedness) and issues shares of stock (evidence Unfortunately, in the less developed countries even the most basic needs
of ownership), or utilizes its income and other assets, but it cannot or goods cannot be produced in sufficient quantities for every poor family.
raiseresources through taxation and printing money. The decision on the problem of production priorities depends on the types
3) Budgeting Procedures of economic system. If it is under capitalism, the goods which command
In private finance, the preparation of the budget starts from the income the higher prices or profits are produced first. Since communism is for
side, that is, the private entity determines income and additional resources service and not for profit, goods are produced according to the needs of
from borrowing, and then proceeds to individual expenditure items. the people. In the case of socialism, it is a combination of capitalism and
Public finance, on the other hand, usually works the other way around. The communism. The major industries are controlled by the state. Production
government determines first its expenditure needs, and then looks around therefore of goods is based on needs and profits.
for possible ways of financing them. This budgeting procedure can indeed B. How are the goods produced?
contribute to deficit spending, that is government receipts (which already The ideal situation is to produce the goods with the most efficient method.
include borrowing) do not fully cover government expenditures. For private This involves machines, technology, management, and skills. Many
finance, this situation represents faulty management. In the case of public developing countries are deficient on these. They use primitive methods of
finance, which does not operate on the basis of profit expectations, deficit production – not much different from those during the ancient times. Thus,
financing may, at times, be an acceptable alternative. their productivity is extremely low, and this contributes to their poverty and
BASIC ECONOMIC PROBLEMS underdevelopment.
Every nation, rich or poor, has economic problems. However, these are On the other hand, the rich nations have comparatively lesser problems on
more serious and widespread in poor countries. Economic problems do production methods. They have the money to buy the best tools and
exist because of 2 fundamental facts: resources are limited and human techniques of production. This does not mean, however, that they have no
wants are unlimited. production problems. Take the case of the US. Due to geographical
Human wants cannot possibly be all satisfied because resources are limitations, it cannot produce all the needs of its people. It is searching for
scarce. Example, every family wants a house and a farm. This is not a better technology of producing products that are excellent substitutes for
oil and other imported products.
C. For whom are the goods produced? irrigation, and technology, among other things. There are properly applied
The distribution of goods is determined by the economic system. Under in order to produce more output. Such process is development.
capitalism, goods are allocated in the markets. Those who have the Economic development is a progressive process of improving human
money, and they are willing to buy, get the goods. Obviously, the rich conditions, such as the reduction or elimination of poverty, unemployment,
acquire more goods and services than the poor. Those who are below the illiteracy, inequality, disease and exploitations. Evidently, economic
poverty line do not even eat every day. They cannot even buy medicines development is not only an economic process. It involves both economic
for their dying children. and non-economic factors.
In communism, goods are distributed according to the needs of the people. Economic factors are capital, technology, and market.
The government supplies the needs of the people, such as food, clothing, Non -economic factors are culture, religion, government, education, among
shelter, education, health, etc. Of course, if such country is poor, it cannot other things. The combination and interaction of these factors determine
adequately meet the needs of its people. But the available scarce goods the extent and nature of economic development. In fact, the non-economic
are fairly distributed so that factors have stronger influence on the economic development of nations.
no member of society is extremely poor. In fact, communism is a classless Some countries are progressive while others are not because of the
society. There is equality. aforementioned factors of development.
Under socialism, both market and state determine the distribution of goods. CLASSIFICATION OF COUNTRIES
Essential and strategic goods are being allocated by the government at The economy of a country is measure by its gross national product (GNP)
cost. The very poor ones and the aged enjoy welfare programs. Goods that or per capita income. The basis of comparison is the economy of the highly
are given to the private sector are sold profit. Those who are interested developed countries, usually the US. If the GNP of a certain nation is near
and have the money can get them, like cars and other luxury products. the GNP of the rich countries, it is classified as intermediate.
MIXED ECONOMIC SYSTEM Those that are far below are classified as less developed. The rich ones
Pure economic systemsdo not exist anymore. Russia and China operate are classified as highly developed. Countries which are backward,
under a heavy socialist economy. This is a combination of communism and underdeveloped, agricultural, developing or less developed are generally
socialism. Many countries have mixed system like the US, Japan and the considered poor nations. Nevertheless, there are few countries that are
Philippines. This is a combination of capitalism and socialism, but more of underdeveloped but they are not necessarily poor. Countries which have
capitalism. It has been observed that both the capitalistic and the advanced, industrial or developed economies are rich countries. Those
communistic countries are moving forwards socialism. countries whose economies are between the highly developed and less
The mixed system is a blend of free market economy and government developed are called intermediate countries/economies.
intervention. It is intended to give incentives to businessmen, and to protect Example
the welfare of the consumers. Due to imperfections of the market system, Highly developed countries – US, Japan, France, Denmark, Australia,
and the presence of less fortunate members of society, the government Russia, Sweden, West Germany, Canada and Israel
has to interfere in market forces. Many businessmen have lost their Intermediate countries – Argentina, Cuba, Libya, Spain, South Africa,
honesty. They create artificial shortage to raise their prices. These Austria, Saudi Arabia, Singapore, Poland, Venezuela
unscrupulous activities have to be checked by the government. The Less developed countries – Kenya, Somalia, Tanzania, Uganda, El
government has also the responsibility to help the poor. They cannot Salvador, Honduras, Peru, India, Philippines, Vietnam
depend on the market for their survival. Unfortunately, the less developed DEVELOPMENT AND ITS OBSTACLES
countries have very limited ability to aid their poor citizens. Is it really possible to attain economic growth without economic
ECONOMIC DEVELOPMENT development? It has been said that growth is the product of development.
Development is a progressive process. It involves the interaction of Not a few less developed countries are apparently progressive for they
different factors. For example, in the case of increasing the harvest of palay have modern buildings and well-developed fruit plantations. There are
per hectare, various inputs are combined like a fertilizers, insecticides, many corporations
which are very profitable but all of these are owned and managed by enduring kind of development. It is the principal key to the progress of the
foreigners. Among the masses, poverty, ignorance, squalor, and disease poor nations.
have been rampant. Only the foreigners and the few local elite have
become prosperous. There are countries in the Middle East which have
experienced rapid economic growth due to their incomes from oil. They
have been able to construct modern buildings, and other symbols of high
living. However, there are no significant institutional changes in their
education, public administration, and health. Cultural lags are dominant in
their societies. Even their economic institutions are still in the process of
development. Because of their big petro-dollars, they can import skills,
technology, management, and materials. In short, they can buy
development.
Development means more than imposing buildings, beautiful houses,
elegant cars, money or modern machines. It includes fundamental
changes in society, ways of life, values and institutions. On the other hand,
development without growth is inconceivable. Whenever there is real
development, there will always be growth because growth is a natural
consequence of development.
Obstacle to Development
There are many formidable obstacles that stand on the patch of the less
developed countries, namely:
1. Deficient in capital.
They cannot afford to buy sufficient modern tools of production.
Moreover, management and manpower skills are not adequate. The
technology which they like to adopt is difficult to implement because it
requires imported technicians and machines. Besides, foreign technology
is capital-intensive and labor saving. This only worsens the massive
unemployment problems of the poor countries.
2. Population explosion.
Poor countries are very rich in human resources. Their birth rate is
much higher than in the rich countries. This is a serious problem because
the rate of employment and production in the poor countries is very low.
So, every year more persons are to be fed and employed. Since it is not
easy to control the growth of population for cultural and religious reasons,
and it is difficult to increase production, there is growing gap between the
two. Hence, may poor countries become poorer, and they languish in the
quagmire of poverty and squalor.
3. Man Himself
is the greatest obstacle to economic development. Before
improving his physical environment, he should be the first to be improved.
– his attitudes and values. The development of people is the only real and