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1386 Economic and Political Weekly April 15, 2000
Among the issues of public policy,
the one that has attracted the widest
attention has been the issue of
state versus market in economic development.
The issue has once again assumed
importance in the context of economic
reforms and structural adjustment that are
currently under way in many countries.
The goal of development is improvement
in the quality of life of people. But on the
means to achieve this goal, perceptions
and approaches have been changing over
time. This has led to a continuous reappraisal
of the roles of state and market in
the development process. This question
obviously does not admit of a categorical
‘either-or’ answer. It is neither feasible nor
desirable to argue for a total withdrawal
of government from all spheres of economic
activity or to advocate total state
intervention in all areas of economic life.
What needs to be determined is the optimal
state-market mix. Apart from the general
principles governing the merits and demerits
of state and market intervention, the
mix can vary from country to country depending
on the historical experience of the
functioning of the state and markets. While
recognising that state and market have
separate but interconnected roles to play,
the emerging view is that the market must
be allowed to work wherever it can function
efficiently and the state must step in
wherever the market does not succeed. In
the course of this paper an attempt has been
made to provide the broad contours of this
debate, derive lessons from international
experience and provide a framework for
determining the appropriate mix.
Developments in the Literature
The literature on the respective roles of
state and market is long and interesting.
From the days of Adam Smith to the present,
notable contributions have been made by
distinguished economists from various
schools of thought. The earliest proponent
of free trade was Adam Smith who was...