The Role of the State in Development Planning and Prevention of Crisis
| Author | Sasha Obradovic |
| Pages | 312-321 |
Sasha Obradovic. Assistant Professor, Faculty of Economics, University of Kragujevac, Serbia (sobradovic6@sbb.rs)
Page 312
The central question that meets all of the world economy is how to allocate between the alternative use of resources, in terms of the global competition. This issue is particularly important for all countries in the Balkans because they are less developed, and the basic needs of population for inclusion in European integration flows are much greater. Production resources are, according to the rule, limited, while on the other side, human desire for goods and services is almost unlimited. In a market economy, consumers’ demand and production costs have a function to balance consumers’ wishes and existing resources. To produce certain goods, it is necessary to attract resources from their alternative uses, mostly from the production of other goods, and to attract resources, producers have to bear certain costs. Market prices are efficient, but not a socially responsible signal that directs the manufacturers to offer more or less goods and thus affect the change of the production profitability The use of resources for the production of certain goods denies their further use for the production of other goods. So, the use of resources always costs and nothing is free. Of course, some products for individuals or groups can be free if the account is paid by someone else. This does not reduce the cost, but it only transfers it to someone else.
Politicians in most Balkan countries often use phrases such as free education, health, etc.. This terminology deceives, because nothing is free in a modern market economy. For example, resources that are used to build schools, could be used for the production of larger quantities of food in agriculture, or any other use. The costs of education, for example, consist of the value of all the products whose production is unfinished, so the resources could be used for education. State can transfer the costs from one subject to the other, but they can not be avoided, because limited resources have their cost, which is applicable to all areas of life. The reality of resources shortage is always present, regardless of the improvement of human welfare.
An effective way of development and integration in the globalization trends implies a dose of the state intervention in the economy, and it is not a minimalist effect, present in the free market liable to large impacts and crisis. Global capitalism should be combined with the coordinated international intervention, because there are areas where even integrated market does not providePage 313 good results, and where only the effect of markets can lead to some development problems. However, the state, especially if it comes to a democratic government, is not a mechanism for removing the mistakes and solving all kinds of problems (e.g., inadequate health care, poor education or the high costs of living). State can’t solve all the problems, no matter if the entity that makes decisions is in the public interest, as well as the mechanism for the correction is not always available when a market does not provide the desired result. What is important is, that there is no guarantee that the policy which represents the majority of the elected state representatives will stimulate economic development and that it will act preventively or stabilizing in the case of the economic crisis. Often, the governments selected by a large majority of voters adopt the economic policy measures that undermine the economic prosperity or lead ultimately to even bigger economic crisis.
It is wrong to put the sign of equality between the democracy and market economy. Most countries of the market economy have democratic political institutions, but it needn’t be the case. Political democracy doesn’t guarantee market economy, because there are cases of the democratic countries in the allocation of goods and resources, that rely on state regulations and tax policy instead of the market. Democratic elections themselves cannot provide the environment that leads to economic development. Only the constitutional regulations, which adjust the political processes and principles of a healthy economy, would contribute improving the economic development. Therefore, it is very important to limit the reach of the state authorities, in other words, to create its neutrality in relation to different interest groups, keeping in mind the global experience.
Market failures are the argument for the government intervention in the development process and the anti-crisis action (Arndt 1988, 1). In the past, market failures caused many under-developed countries to adopt different forms of planning in the allocation of resources. In not so distant past of the Balkan countries, centralized planning completely replaced the role of the markets and bureaucratic authorities made decisions about the allocation of resources. Sectorial allocation of resources was completely centralized. The role of the state in the development process and prevention of the economic crisis changes conceptually, after the fall of communism in the Soviet bloc and Eastern Europe. After the collapse of the central planning system, most of these countries changed to the introduction of a completely free market, which led to many negative consequences, due to the transition from one extreme to the other economic system. On the other hand, in many developing countries, the state failed to provide fundamental public goods, such as order, law, education, etc. (Ghosh 1984, 4). In the countries that have gone through the civil wars, it often came to a complete institutional blockade, for example, in Serbia at the end of the 1990s. Therefore, it is important to build a structure of law that is clear, unambiguous and non-discriminatory, because the legal system in the country affects the level of the economic activity. In this respect, in the world frames, the role of the state in some countries has been fascinating, when it comes to development (eg., Singapore, South Korea, Hong Kong, Japan and Thailand), (Wade 1990, 18).
On the other hand, in a predatorian state, the state power is not limited, in other words everything is ready to be snatched away in the political process, while robbery and usurpation are the main motive of conduct, especially in the political life of a country. In such types of the state (cleptocratia), the individuals spend more time on political organizing and fight to get a piece of the economic "cake" through the political activity, instead on the production of the "cake". This leads to a reduction of the total product, increasing intolerance, distrust and even hatred betweenPage 314 certain groups in the society, where production stagnates, and life in this country is not nice. In such countries there is a higher degree of the ethnic and regional diversification, which probably leads to the internal conflicts and instability. In contrast, the state promotes the development, when it stimulates the production activity, and distimulates robbery, and has the role of a neutral force to protect property rights and force the execution of the contractual obligations. Effective law enforcement makes the attempt robbery of someone's property harder and reduces the funds which will be directed to the mugging and parasitic life.
Therefore, the main roles of the state in promoting development and successful integration into the global economic trends are:
1) correction of market imperfection;
2) preserving macroeconomic stability and providing the institutional framework, through which the market can give effective results;
3) protection of the natural environment and living environment;
4) provision of public goods (order, law, defense, etc..)
5) protection of the certain categories of the population;
In terms of preserving the macroeconomic stability and security of just and equal distribution of income, it should be kept in mind that the cost of transfer income, made by the state, may be higher...
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