The state versus the market : a false dichotomy

Abstract EN

The rush towards globalization and a sense of triumphalism about capitalism in the aftermath of the disintegration of the Soviet Union have combined to revert much of the economics profession to a new fundamentalism about the virtues of markets and the shrinking of government.

Over the past three decades, a stunning imbalance in ideology, conviction and institutions has emerged one that favors markets over the state.

This triumphalism has been challenged both on theoretical and empirical grounds by the unraveling of the financial markets and the speed with which recessionary forces have spread across the world.

The pendulum is swinging back under the force of systematic and highly refined theoretical questioning of the orthodoxy, the critical re-assessment of the Southeast Asian experience and recent economic upheavals. As important as its role in shaping the economy, the state can also frustrate and override the development of a vibrant private sector that can play a key role in sustaining a balanced and prosperous economy.

The dominance of the state or its exclusive eminence could threaten and retard growth and development as it can subvert the dynamics of a propulsive and dynamic economy.

It is here where the excesses of one system can undo the success of the entire economy.

The real substantive issues are not about market failure or government failure but about what makes for a successful economy where both systems can work together re-enforcing each other as equal partners in the responsibility for sustainable development.