Transcript The role of the state and development

The role of the state and development
• Intro.
– State before and after Washington Consensus
– New Consensus
– Recent theories of Development policy formation,
including the studies of the impact of political process
on the quality of policy decisions
– We will also examine the important trends in
Governance and reforms, tackling the problem of
corruption, implementing decentralization and
encouraging broad based participation in
Development.
The role of the state and development
• State and Development and Planning
– According to MP Todaro, Economic planning is
defined as deliberate attempt to coordinate
economic decision making over the long run and
to influence, direct and in some cases, even
control the level and growth of nations.
The role of the state and development
• Economic Plan : is simply a specific set of quantitative
economic targets to be reached in given period of time,
with a stated strategy for achieving those targets.
• There are two types of economic plan:
– Comprehensive Plan sets its targets to cover all major aspects of
the national economy.
– Partial Plan covers only a part of the national economy –
industry, agriculture, the public sector, the foreign sector and so
forth.
– Planning process itself can be described as an exercise in which
a government first chooses social objectives, then sets various
targets, and finally organizes a framework for implementing,
coordinating and monitoring a development plan.
The role of the state and development
• Planning in mixed economy.
– Such economies are characterized by the
existence of institutional setting in which some of
the productive resources are privately owned and
operated and some are controlled by the public
sector under state control.
The role of the state and development
• Failure of Government
• Use of market mechanism was seen as key instrument for
promoting greater efficiency and more rapid economic growth.
• Ronal Reagan, the US president called it Magic of Market place at
Cancun in 1984. Margret Thatcher called it there is no alternative
(TINA) for market economy under neoliberalism.
• In development literature, 1970’s is described as period of
increased public sector activity
• 198’s faced great shift from public sector to free market economy.
The role of the state and development
• To sustain the free market economy, the mandate
of IMF and World Bank changed
• Growth of public sector - 15% to 25% GDP
• Investment - 40% to 50%
• Returns on public investment, in terms of GDP
Growth declined due to following factors:
– Poor investment decisions, delays in implementation,
low capacity utilization and insufficient maintenance
of public projects.
• Price distortion is cited another factor for low
GDP, according to World Bank
The role of the state and development
• Market Economy - some preconditions.
1. Econmists like Nathan akeyfitz and Robert Dorfman have
listed following institutional and cultural requirements for
the operation of effective private markets.
2. Trust (in banks insurance companies, suppliers, etc)
3. Law and order (enforcement of contracts)
4. Security of person and of property
5. Balancing competitions with cooperation (for a safe
workplace and cleaner environment)
6. Division of responsibility and diffusion of powr ( an
independent judiciary)
The role of the state and development
7. Community altruism ( s social safety net for the
impaired, chrononically unemployed, elderly and etc.
8. Social mobility, legitimation of ambition and
toleration of competitiveness Materialistic values as a
stimulus to greater production
9. Honesty in government.
10. Efficient form of competition, as opposed to
monopolistic control
11. Freedom of Information (along with protection of
privacy)
12. Flows of information without restriction or favoritism
The role of the state and development
• Role and limitation of Market in LDC
• Imperfections
– Lack of information about the size of market
– Presence of uncertainty
– Low investment in health and education
– Capital formation
– Distribution of resources
The role of the state and development
• Emergence of Washington Consensus.
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Fiscal discipline
Tax reforms
Unified and competitive exchange rate
Secure property rights
Deregulation
Trade liberalization
Privatization
Elimination of barriers to direct foreign investment (FDI)
Financial liberalization
Withdrawal of Subsidy
Austerity measures – cutting expenditure and downsizing
The role of the state and development
• Emergence of Santiago Consensus 1998
• Development must be market based but there large
market failures that cannot be ignored.
• Government should not be in the business of direct
production, as a general rule
• But, there is a broad, electic role for government in :
1. Providing a stable macro environment , infrastructure,
though in fewer sectors than though necessary in the
past
2. Public health
3. Education and training
4. Technology transfer
The role of the state and development
5. Ensuring environmentally sustainable development,
ecological protection
6. Providing export incentives.
7. Helping the private sector to overcome coordinating
failures
8. Ensuring ‘shared growth’, acting to reduce poverty
and inequality and ensure that the continued if
more moderate regulation and support in financial
sectors
9. Provision of fundamental public goods, such as legal
structure, including the protection of property
rights.
The role of the state and development
• Political Economy Development: Theories of
policy formulation
– Neoliberalism
– Neo Marxism
– Structuralism or Mixed Economy.
The role of the state and development
• Democracy VS Dictatorship
• Governance and reforms
– Tackling the issue of corruption
– Decentralization
– Development participation.
The role of the state and development
• Conclusion