Question

The role of states in promoting economic development, especially economic growth, remains controversial. What are some of the clearest cases (historical or more recent) where states have helped propel such economic activities as industrialisation? How would one explain successful cases of economic intervention by states? Illustrate your answer with reference to at least two specific country cases. A 1500word essay

Answer 1

States do play a very significant role in propelling the economic development of a nation. Some points to be noted in favour of this statement are as follows:

1. Economic Development as opposed to economic growth focusses on more wholistic growth where we also include the parameters such as decrease in poverty, increase in literacy rates, increase in welfare in the society as well. This is unlike the concept of economic growth, which limits itself to the quantitative aspect of growth and does not represent how well the growth is being distributed and if it is actually leading to the overall welfare in the society or not. If that is to be considered, intervention by states becomes mandatory, as otherwise if the economies only function as a free market or capitalist pattern, the entire economy will be restricted on earning more profits and increasing growth and productivity. While this may work well in case of Trickle down approach, but the experience have shown that, trickle down approach rarely works.

2. The government intervention helps in distributing the economic resources and making it accessible to the social aspects of development, which may have long gestation period, involve heavy expenditure and may also not give immidiate returns. This can make the private enterprises, stay away from investing in those sectors, but the government being more welfare driven will work in the interest of the public to parallely invest in these areas as well. Additionally this leads to increase in social benefits due to positive externalities which may eventually contribute to the country's growth rate with a more equitable distribution of the growth among its population, thereby increasing the overall standard of living of all the people within the country.

3. The government's intervention allows the economy to break away from the lower level of equilibriums in case when the economy is facing recession and depression like conditions. In such cases, Govt expenditure and expansionary fiscal policies can oil the gears in the economy, reseting the economy to resume the economic activities, which otherwise would not be possible with the capitalist setting, because then in that case, the private entrerprises will have a negative outlook about the future aspects of the economy and will be unwilling to invest in the economy.

4. The examples of such interventions, which aided the economy to move forward can be the 2007-2008 crisis when the entire global economy including America was reeling under recession. In such a case the bail out package announced by the government, helped the economy to resume its activities and increase the aggregate consumption in the economy, resulting in better growth and more employment opportunities in the near future.

5. Another such example can be the corona pandemic, where the government's intervention is going to play much bigger roles than it did ever before. As the crisis has recked the economies around the world, the efffects of this crisis on the economy will be much adverse than any of the previous recessions that the world economies have undergone. With all the private activities, having come up to a complete halt, already millions of jobs have been laid off. Coming back to a normal flow in the economy will become very difficult in this case, as the economies will now set in at a lower level of consumption and demand and increased savings. Also having been ravaged by the affects of the pandemic, the private enterprises, will be unwilling to take up new investments, in such a case, in order to boost up the aggregate demand and allow for more investments to take place, the governments would need to adopt not only greater government expenditures but also change its taxation policies to allow more consumption in the economy.