The State and the Market in Industrial Development: Perspectives from the 1980s

The relationship between the state and the market has been a continuous theme for those economists seeking to understand the process of economic growth and to advise on policies to affect that process. The classical economists from Adam Smith through Marx devoted much of their work to that task, and a central theme was the relationship of those two institutions in facilitating or hampering the growth process. With the rise of neoclassical economics, attention shifted from the study of growth to the study of the market per se. Simultaneously, the question of appropriate government policies, whether in relation to the market or to economic growth, became a marginal issue in mainstream economics, although not among institutional economists in the United States or historical economists in Germany. The world depression of the 1930s, the rise of Keynesian economics and World War II revived such issues within developed economies. The aftermath of that war, which saw the breakdown of the colonial system and the rise of a large number of independent states with a major goal of economic growth, recreated the field of economic development within the economics discipline. This was true in the developed countries, whose leaders sought to develop economic policies toward the former colonies, and in the developing countries, where appropriate government policies to stimulate growth became a major task for the new rulers…