27821626 Changing Role of Government

8/13/2019 27821626 Changing Role of Government

1/4

Changing role of government

INTRODUCTION

The market was the most appropriate instrument for realizing economic growth &improving human welfare. The states role was thus to be restricted to certaincore function providing public good such as defence & highways, maintaininglaw & order to ensure security of person & property, enforcing contracts &providing primary education to the people. In !thcentury the government role inredistributing income was limited & ta" system were used entirely for revenue

raising, state thus remained small by modern standards until world war first.In developed economies of the west, the policy makers by & large agreed onthree principles. #irst, there was agreement on the limitations of the privateenterprise & thus mi"ed public$private economy was regarded as desirable. Thisimplied nationalizing a wide range of strategic industries. %econdly, need for acoordinated macroeconomic policy was recognized because market alone failedto ensure macroeconomic stability that is that is needed for sustained growth ofbusiness. #inally, reliance entirely on market#or the welfare of the people was a uestionable proposition.In the three and a half decades between !'( & !!), government westerneconomies assumed new role & e"panded e"isting ones. *y the mid$!!(s the

range of tasks performed by the government & its agencies included not onlymaintaince & development of infrastructure & utilities but also much more supportfor education, health care & social security. +s a result, in the ) year periodfrom !'( onwards the central government e"penditure rose from less than -(of /01 to over (.*etween !22 & !! the process of rela"ing control started. 3owever obthopen & hidden subsidies went on increasing. In this period fiscal deficit becomeunsustainable and the country was in deep economic crisis in !!($!, Inresponse to this crisis the reform process began in this country. 4ost of thecontrols dismantled and the states role changed from that of principal investor tothat of facilitator pf entrepreneurship.

567874I6 97:5% 7# T35 /7;598458T1. 9egulation2. 1romotion3. 1lanning4. 1roduction


2/4

As regulator

/overnment world over made a body of laws and policies to assure thatcompetition is at least maintained if not enhanced. The antitrust laws passed in

different countries commit the /overnment to preventing monopoly andmaintaining competition. These laws are generally concerned with si" specificareas< price discrimination, e"clusive and tying contracts, intercorporate stockholdings, interlocking directorates, mergers and trade practices that in=ureindependent retailers and wholesalers.I developed countries, now$a$days industrial activity is not regulated. In contrast,some of the developing countries are persisting with individual licensing. Thereare also restrictions on industrial location. 1roduction of certain goods is reservedfor small scale units. 3owever, in recent years even developing countries havewithdrawn many stringent regulations. Import controls, foreign e"changeregulations, and price controls are now rare. The /overnment today prefers to

rely more on fiscal and monetary measures to regulate business activity. 4odernbusiness is aware that regulatory structure will never be dismantled completely.Todays regulatory structure consists of >old and >new. The older economic typeof regulation focuses on specific industries, markets and business practices. Thenewer, social type of regulation focuses on products, production and publicissues.

As promoter

1romotional role of the /overnment in a capitalist economy is determined by thelimitations of the business. %ince business firms are profit ma"imizes, they havevirtually no interest in making investments in sectors where return is either small,because of long gestation periods of pro=ects, uite uncertain.The governments have thus accepted the responsibility of infrastructuredevelopment. It has been observed that not only in developing countries but alsoin some of the developing countries, business suffers from a failure to use themost advanced management techniue, to cope with the scarcity of scientist andengineers, to introduce promptly advanced technical processes and to spendenough on research and development. The efforts in the field of research anddevelopment improve labour efficiency and industrial productivity.

The /overnments promotional role is most pronounced in the field of finance. Indeveloping countries, new issues by corporate enterprises are generallyunsuccessful due to inadeuate development of capital markets. ?nder thecircumstances, resource mobilization by the /overnment owned financialinstitutions assumes great importance. 0evelopment banks are special industrialfinancing institutions.In developing countries, the government felt the need for setting up specialindustrial financing institutions due to inadeuate development of capital markets.


3/4

The normal channels of finance being ill developed, industrial development hadsuffered for long time in these countries and the /overnments committed toaccelerate the pace of industrialization thus decided to create special financialinstitutions which could function as development agencies.

As planner

The /overnment plays important role as a planner, especially in developingcountries. 0uring the post world war II period, many developing countriesadopted economic planning for achieving higher growth rate and better standardof living.4arket forces fail to attain efficient allocation of resources in most developingcountries due to imperfections in the product and factor markets. 3ence,governments adopt economic planning for obtaining efficient allocation ofresources.

1rivate investors usually ignore the dynamic e"ternalities which account for thedifferences between social benefit and private benefit. /overnment in developingcountries follow for removing the differences between social benefit and privatebenefit that is considered being necessary to obtain optimal allocation ofresources.Institutional reforms are sometimes necessary for realizing rapid economicgrowth. + market economically usually does little to carry out institutionalreforms. In contrast, economic planning permits the governments introducenecessary institutional reforms which in turn create condition for more rapidgrowth.0eveloping countries lacking productive resources such as capital, skilled

manpower, and foreign e"change want to use them in the most productive wayand this can only be achieved if the whole economy is covered under an overallplanning mechanism.

As producer

In most capitalistic countries, the bulk of production is done in the private sector.%mall scale manufacturing, commerce and agriculture are mostly in private

hands, while large scale manufacturing mining and finance are under the controlof transnational, domestically owned corporate and public sector enterprises. Indeveloping countries, state$owned utilities provide electricity, gas and water.1ublic enterprises also play a significant role in transport and communications. Incontrast, pattern of ownership differs substantially in different countries in miningand manufacturing.1ublic sector enterprises have been set up in various countries for a variety ofreasons. @hereas in former 5ast 5uropean socialist countries, state owned


4/4

5nterprises were set up for ideological reasons, In some other countriesgovernments acuired control of basic enterprises from foreign owners as fromminority ethnic groups. In most cases, however, government set up public

enterprises because of the weakness of private entrepreneurs.Theoretically there is no reasons why public enterprises should not operate at thehighest possible efficient level. *ut in practice there has been a great differencebetween what is theoretically feasible and what actually happened. 5"plainingthe reasons why efficiency levels are in the state owned enterprises A%75sB theworld development report !C stated,D +s a commercial entity, an %75 mustsell in the market place. +s a public organization, it is given other ob=ectives andis e"posed to pressure from politically powerful sectional interest %75s are oftenoperated as public bureaucracies, with more attention to procedures than toresultsE and ready access to subsidies can erode the incentive for managers tominimize costs.

CONSENSUS ON FUNCTIONS OF THE STATE

There are activities that will not be undertaken at all without state intervention. +tthe other e"treme one finds activities in which the state plays an activist role incoordinating markets or redistributing assets. In between these minimal andactivist functions are intermediate functions, such as regulation of monopolies

and addressing e"ternalities.

Documents

27821626 Changing Role of Government