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The Role of the State in the New Economy

In: Economic Reform in Vietnam

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  • Keith Griffin

Abstract

The role of the state in a centrally planned economy is very different from that in a market oriented economy. In a planned economy resources are allocated by administrative mechanisms, not by the price mechanism. Indeed prices of factors of production (labour, capital, land) and of goods and services play no role in ensuring efficiency in the use of resources Similarly, the rate of investment in a planned economy reflects planners’ preferences whereas in a market economy the rate of investment is strongly influenced by profit expectations of individuals and privately owned enterprises. Finally, the distribution of income in a planned economy reflects administratively determined wage and salary scales in the industrial sector, the operation of compulsory quota delivery schemes in the agricultural sector and the distribution of free or nearly free public goods and services. In a market economy, in contrast, the distribution of income depends upon the distribution of productive wealth and market generated factor rewards (wages, interest rates, profits, rents). The role of the state thus is much more pervasive in a centrally planned economy than in a market oriented economy.

Suggested Citation

  • Keith Griffin, 1998. "The Role of the State in the New Economy," Palgrave Macmillan Books, in: Keith Griffin (ed.), Economic Reform in Vietnam, chapter 3, pages 37-55, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-333-99521-1_3
    DOI: 10.1007/978-0-333-99521-1_3
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