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Analysts cite dangers of government intervention

January 20, 2009 by  

Government intervention in the market may not be a good ideaAs the damaging effects of the financial crisis continue to spread, there has been a tendency for people to turn to the government for solutions.

However, many analysts argue that government intervention in the free market may not be successful, Reuters reports.

According to the World Economic Forum’s 2009 Global Risks report, one of the problems at the heart of addressing these concerns is that the financial crisis is global, with the actions of a single government able to affect – and be affected by – countries around the world.

"That intervention will be both reactive and uncoordinated by a series of local, regional and national political actors," commented Ian Bremmer of Eurasia Group in his 2009 outlook.

The world is moving toward a situation in which politics and the free market are necessarily intertwined, he said.

According to the WEF report, this could end up disrupting the natural system of incentives that encourage growth.

"Intervention in support of the financial and manufacturing sectors carries the risk of rewarding failure or propping up inefficient corporations and industries," it states, according to Reuters.

Companies who do not receive government funds may also find themselves at a disadvantage, it explains.
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