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 certain core function providing public good such as defence & highways, maintaining law & order to ensure security of person & property, enforcing contracts & providing primary education to the people. In !th century the government role in redistributing 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 on three principles. #irst, there was agreement on the limitations of the private enterprise & thus mi"ed public$private economy was regarded as desirable. This implied nationalizing a wide range of strategic industries. %econdly, need for a coordinated macroeconomic policy was recognized because market alone failed to ensure macroeconomic stability that is that is needed for sustained growth of business. #inally, reliance entirely on market #or the welfare of the people was a &uestionable proposition. In the three and a half decades between !'( & !!), government western economies assumed new role & e"panded e"isting ones. *y the mid$ !!(s the range of tasks performed by the government & its agencies included not only maintaince & development of infrastructure & utilities but also much more support for education, health care & social security. +s a result, in the ,) year period from !'( onwards the central government e"penditure rose from less than -(. of /01 to over ,(.. *etween !22 & !! the process of rela"ing control started. 3owever obth open & hidden subsidies went on increasing. In this period fiscal deficit become unsustainable and the country was in deep economic crisis in !!($! , In response to this crisis the reform process began in this country. 4ost of the controls dismantled and the states role changed from that of principal investor to that of facilitator pf entrepreneurship. 567874I6 97:5% 7# T35 /7;598458T 1. 9egulation 2. 1romotion 3. 1lanning 4. 1roduction

As regulator
/overnment world over made a body of laws and policies to assure that competition is at least maintained if not enhanced. The antitrust laws passed in different countries commit the /overnment to preventing monopoly and maintaining competition. These laws are generally concerned with si" specific areas< price discrimination, e"clusive and tying contracts, intercorporate stock holdings, interlocking directorates, mergers and trade practices that in=ure independent 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. There are also restrictions on industrial location. 1roduction of certain goods is reserved for small scale units. 3owever, in recent years even developing countries have withdrawn many stringent regulations. Import controls, foreign e"change regulations, and price controls are now rare. The /overnment today prefers to rely more on fiscal and monetary measures to regulate business activity. 4odern business is aware that regulatory structure will never be dismantled completely. Todays regulatory structure consists of >old and >new. The older economic type of regulation focuses on specific industries, markets and business practices. The newer, social type of regulation focuses on products, production and public issues.

As promoter
1romotional role of the /overnment in a capitalist economy is determined by the limitations of the business. %ince business firms are profit ma"imizes, they have virtually 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 infrastructure development. It has been observed that not only in developing countries but also in some of the developing countries, business suffers from a failure to use the most advanced management techni&ue, to cope with the scarcity of scientist and engineers, to introduce promptly advanced technical processes and to spend enough on research and development. The efforts in the field of research and development improve labour efficiency and industrial productivity. The /overnments promotional role is most pronounced in the field of finance. In developing countries, new issues by corporate enterprises are generally unsuccessful due to inade&uate development of capital markets. ?nder the circumstances, resource mobilization by the /overnment owned financial institutions assumes great importance. 0evelopment banks are special industrial financing institutions. In developing countries, the government felt the need for setting up special industrial financing institutions due to inade&uate development of capital markets.

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

As planner
The /overnment plays important role as a planner, especially in developing countries. 0uring the post world war II period, many developing countries adopted economic planning for achieving higher growth rate and better standard of living. 4arket forces fail to attain efficient allocation of resources in most developing countries due to imperfections in the product and factor markets. 3ence, governments adopt economic planning for obtaining efficient allocation of resources. 1rivate investors usually ignore the dynamic e"ternalities which account for the differences between social benefit and private benefit. /overnment in developing countries follow for removing the differences between social benefit and private benefit that is considered being necessary to obtain optimal allocation of resources. Institutional reforms are sometimes necessary for realizing rapid economic growth. + market economically usually does little to carry out institutional reforms. In contrast, economic planning permits the governments introduce necessary institutional reforms which in turn create condition for more rapid growth. 0eveloping countries lacking productive resources such as capital, skilled manpower, and foreign e"change want to use them in the most productive way and this can only be achieved if the whole economy is covered under an overall planning 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 control of transnational, domestically owned corporate and public sector enterprises. In developing countries, state$owned utilities provide electricity, gas and water. 1ublic enterprises also play a significant role in transport and communications. In contrast, pattern of ownership differs substantially in different countries in mining and manufacturing. 1ublic sector enterprises have been set up in various countries for a variety of reasons. @hereas in former 5ast 5uropean socialist countries, state owned

5nterprises were set up for ideological reasons, In some other countries governments ac&uired control of basic enterprises from foreign owners as from minority 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 the highest possible efficient level. *ut in practice there has been a great difference between what is theoretically feasible and what actually happened. 5"plaining the reasons why efficiency levels are in the state owned enterprises A%75sB the world development report !C, stated,D +s a commercial entity, an %75 must sell in the market place. +s a public organization, it is given other ob=ectives and is e"posed to pressure from politically powerful sectional interest %75s are often operated as public bureaucracies, with more attention to procedures than to resultsE and ready access to subsidies can erode the incentive for managers to minimize costs.

CONSENSUS ON FUNCTIONS OF THE STATE

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