How do “rules of the game” set by the government affect economic productivity and growth?
The “rules of the game” as set by the government, affect productivity and economic growth because they make it more or less easy for businesses to innovate.
The most common view is that rules that are set by the government tend to reduce productivity and retard economic growth. For example, when the government sets rules about giving workers frequent breaks or requiring them to take elaborate safety precautions in certain circumstances, it takes away from productivity. Workers spend more time doing things that do not produce anything. This reduces productivity and thereby makes it harder for an economy to grow.
However, there are things that the government can do that can actually help productivity and economic growth. One major example of this is the granting of patents. When the government grants and enforces patent rights, it encourages innovation. Innovation leads to greater productivity as people invent things that make work easier. This can lead to economic growth.
Therefore, we can see that the rules of the game can affect business in ways that are positive or negative in terms of productivity and economic growth.