Production in market economies arises from the interactions of millions of individuals and firms. When we buy a pen, for instance, we are buying the output of a pen dealer, a pen manufacturer, a plastic company, a steel company (nib of a pen is made of steel), ink firm and so on. This division of production among many firms allows the economy’s factors of production to be used as effectively and efficiently as possible. To achieve this outcome, the economy has to coordinate transactions among these firms, as well as between firms and consumers or simply we can say to achieve this outcome, the economy should have free market. Because market economies achieve this coordination through market prices. That is, market prices are the instrument with which the invisible hand (of Adam smith) of the market-place brings supply and demand into balance.
 An important prerequisite for the price system is the ‘property rights’. Property rights refer to the ability of the people to exercise authority over the resources they own. A person does not open his shop if he expects the goods to be stolen, same is the case with farmer. The shopkeeper opens the shop only if he is confident that he will get benefit from the shop and so does the farmer. For this reason government institutions serve an important role in market economy. They enforce the property rights through the criminal justice system, the courts also discourage theft etc consequences of these factors are apparent that they will ruin properties whether private or public. For example in Kashmir in less than a month of demonstrations( hartals) govt. faced a loss of 13 thousand crore and these demonstrations  continued for months when BJP called for All India Bunk in 2010 for food inflation purpose the government faced an estimated loss of 14-16 thousand crores on that single day.
 Human capital is the economist’s term for the knowledge and skills that workers acquire through education, training and experience. Human capital and technological knowledge are considered the keys to open the lock of the development of economy (state) in the long run. Now look at our state students (human capital) have very high absenteeism due to the political instability. How could a person receive on the job training if he cannot reach to his job place or if he could then did not expect his return curfews. How could a student receive education_____investment in human capital___if he stays in home during almost all the session?
 By political instability brain drain takes place. Brain drain is the emigration of many of the most highly educated workers to rich and safer states or countries, where these people can enjoy safer and higher standard living. The students who have spent time abroad may choose not to return home because of insecurity, and this brain drain reduces the nations stock of human capital. Throughout history the primary cause of fluctuations in government debt is war. When wars occur, government spending on national defense rises substantially to pay for soldiers and military equipment. Taxes typically rise as well but by much less than the increase in spending. The result is a budget deficit and increase in government debt. When the war is over government spending declines and the debt-GDP ratio starts declining as well.
 Thus economic prosperity depends on political prosperity. A country with an efficient court system , honest government officials , and a stable constitution will enjoy a higher economic standard of living than a country like India with a poor court system (gives Raju bail and puts Babu in jail), corrupt officials (as in 2G spectrum), and frequent revolutions and coups(as in many states including Kashmir, UP, Ahmadabad and  Madhya Pradesh) will face higher food inflation, higher tax rate, overall hyper inflation, and  unemployment which leads to low economic standard of living.

(Khalid Fayaz  is studying Economics at Aligarh Muslim University.
Feedback at khalidfayazbsa@yahoo.com)

Lastupdate on : Mon, 21 Mar 2011 21:30:00 Mecca time
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