Market: What is the Role of State?

Published on 15th June 2009

The current Global Financial Crisis has reminded us that, States have big roles in making the market function properly. It has reminded us that, when the market forces: demand and supply are left to operate uncontrolled, they can seriously misbehave and the consequences are always unbearable. We all see, read and hear how the Financial Crisis has affected both big and small economies. 

The premise that when there is a Global Economic Crisis, Poor Countries are the only ones that are affected does not hold water any more.  The economies of different Countries are now interdependent and thus the World Economy is interlocked.  This is contrary to what it used to be believed that, When the U.S. sneezes the World catches a cold !”  The opposite is equally true today.  Our prosperity is linked inextricably to the maintenance of a strong World Economy, an open international trading system, and stable Global Financial Markets.

The role of State in the Economy has been a matter of great concern among Scholars and Experts of different fields be it development, finance, or economy. Different schools of thought have emerged, some arguing that States have been playing excessive roles in the Market Economy, while others are arguing that States have been playing low profiles in the Market Economy.

Let me share with you some thoughts on the role of the State in a Market Led Economy.  But before doing this, allow me to cite a Quote by Morris Berman on inequality, technology, future, Market Economy, and United States that says:

“There are two (inter alia) ways of ruining a society – namely, letting the market ‘be the sole director of the fate of Human beings and allowing technology to permeate every aspect of our lives.  In the United States, both of these developments have converged, creating a huge chasm between rich and poor and pushing us over the edge into a kind of anti-society. … While these developments have been widely hailed as the dawn of a golden age, the likelihood is that, they actually amount to a death knell, the beginning of the end of the American empire.” 

Background of the Role of State

The Role of the State is a dynamic process. It is directly linked to social traditions, economic changes and technological innovations. What people want and expect from Government is constantly evolving.  The role and scope of the State therefore, has always evolved to respond to these changing social and economic pressures.

Historically, the role of the State greatly expanded immediately after  the Second  World  War to rebuild industry and guarantee minimum standards of living for all citizens. This was the time the Russian Revolution created a new role for the State under the ideological thesis of Scientific Socialism, Democratic Centralism and Centrally Planned Economies. This was contrary to Democratic Liberalism, Freedom of the Press, Free and Fair Elections and Free Market Economic System. The struggle between these two roles began in earnest after the World War II and lasted for over 40 years that was from 1950 to 1991 when Communism collapsed and the USSR began to disintegrate in early 1992. It is worth noting that, most of the States in the so-called Third World which emerged during the 1950s and 1970s, had adopted the Russian style in various degrees, particularly the One-Party System and Centrally Planned Economy.

At the advent of the 21st Century, the role of the State was increasingly and steadily becoming almost universal. The socio-economic goals have been dominated by Liberalization, Privatization, Globalization and Freely Floating National Currencies. The Political Role of the State is now dominated by Democratization, Free and Fair Elections, Good Governance and the Protection of Human Rights. However, in recent decades, the role of the State has changed again as better educated and more prosperous Citizens with higher expectations want more responsive and personalised services. This has led to the State moving from providing services itself to commissioning, regulating and guaranteeing them. These trends, and the changes they spark, seem certain to continue in the coming years.

In today’s World, the Universal Role of the State can be summarized as follows:

•    Maintaining law and order by fostering the rule of law and individual as well as collective security of its citizens;

•    Enhancing Good Governance, Democracy or Democratization and Popular Participation in Free and Fair Elections;

•    Adopting a stable economic policy, freeing the economy from distortions and combating corruption;

•    Maintaining an Independent Judicial System;

•    Judicious use of National Wealth with special attention to disadvantaged groups in Society;

•    Directing State resources to investment in social services (health, education and social welfare) and infrastructure projects;

•    Protection of environment; and

•    Protection of Human Rights.

This  background postulates that, the role of the State can only be discussed within the context of the other key stakeholders in National  Development, namely, the Government, the Private Sector or Business Community and the Civil Society. Each of these stakeholders bring strengths and opportunities that when fully utilized can lead to higher levels of socio economic advancements.

Complementarities of activities and exploitation of synergies provide an added dimension to the momentum for accelerated economic growth and development. While the immediate agendas of the three Partners may seem different, the overall goal and results of their actions is a higher level of growth and welfare for the Country. It is clear that these players need each other. This explains why the Government of Tanzania forcefully embarked on, and tirelessly working to promoting the Development of the Private Sector and Civil Society since the mid 1990s.

By  Honourable  Mizengo P. Pinda (MP) and Prime Minister of The United Republic of Tanzania,  during the opening of the 14th Annual Research Workshop organised by  REPOA. 


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