State and Market in Development: Synergy or Rivalry?

State and Market in Development: Synergy or Rivalry?

State and Market in Development: Synergy or Rivalry?

State and Market in Development: Synergy or Rivalry?

Synopsis

In the wake of the triumph of neoclassicism in the development economics of the 1980s and the collapse of state socialist economics at the end of that decade, reassessment of the role of the state in development is the order of the day. The authors of this volume resist, without exception, the temptation to put the question as a simple choice of state or market. Rather, most of the chapters inquire into the conditions under which state action and market functioning can combine to advance growth and development. The book includes theoretical chapters, as well as regional and comparative analysis.

Excerpt

Louis Putterman & Dietrich Rueschemeyer

The issue seems decided before it is fully spelled out: state interventions in the economy harm economic growth and development. State action that goes as far as planning and political control of the economy leads to economic disaster. Prosperity comes with reliance on the market. It is the free interaction among economic actors all pursuing their own improvement, not political decision and collective action, that brings sustained advances in economic efficiency.

Two historic developments offer themselves as compelling evidence: the dramatic economic success of the NICs of East Asia, especially Taiwan and South Korea, and the collapse of the state socialist political economies of Eastern Europe. For the past generation, both Korea and Taiwan followed an economic policy geared to exploiting the opportunities of the world market and exposing their industries to the discipline of that market. By contrast, the command economies of Eastern Europe made only minimal use of the market mechanism within their borders, and in the pursuit of regional autarky, they protected their industries against international competition. Their economies not only fell further and further away from their one-time ambition of surpassing the capitalist West in productivity but increasingly failed in meeting even elementary demands of their own societies. Now the Second World merges into the Third.

Such developments seem to call for strong and stark conclusions. and there is indeed a clear-cut shift in the opinions of commentators and policymakers. in fact, public discourse shows an overwhelming tendency toward simplistic trust in “the market” and skeptical rejection of the state’s role in the economy. However, the authors of this volume, among them distinguished economists as well as social scientists, resist without exception this temptation to form simplistic conclusions. They are far from united in their fundamental positions. and their contributions vary a great deal in substantive theme—from a demonstration of the ill effects of government intervention on growth and equity in Southern Asia (Gustav Papanek) to a . . .

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