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Ethiopia: Beyond State Intervention in Markets
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The Reporter (Addis Ababa)
OPINION
27 October 2007
Posted to the web 28 October 2007
Hayal Alemayehu
For several decades now, state intervention in markets and developmental efforts has, at one time or another, been a bone of contention and crucial debate among economists, and between government and opposition parties of respective nations of the world, albeit the merits and demerits attached to it.
In fact, state intervention is always disputable, because it may successfully work or the vice versa depending on the strategy and policies the state employs, as different countries' experience has revealed over the past decades.
State intervention in developing countries, sometimes termed as "developmental state," is crucial as far as it is pursued in the right track that it could effectively and efficiently be done, according to world acclaimed economists such as Joseph Stiglitz. In his recent lecture in Addis Ababa on globalization and growth, Stiglitz, one of the world's foremost economic educator, said that even in the developed countries like the US and Europe, the state has, at one time or another, played an important role in avoiding or reducing market failures and in developmental efforts as well.
The professor noted that the state can play important roles, especially in developing countries like Ethiopia and the rest of African countries.
Providing access to finance, particularly for small and medium enterprises, correcting market failures where the markets by themselves do not work perfectly, or perhaps often fail, and facilitating knowledge-based productivities are some of the major roles Stiglitz suggested that the state in the developing countries can play. "Markets, markedly different from the socialist model, are very important and the center of success, but on the other hand the state can play an important role in directing and promoting development," Stiglitz said. "Figuring out what that role, the balance between the market and the state, is one of the central issues of debates and discussions to date."
This, as well, should have been the central issue of debates and discussions between Prime Minister Meles and members of the opposition parties during this Tuesday's parliamentary session regarding the state's intervention in the market.
That state intervention in the market and developmental efforts is important for developing countries is simply unquestionable, if we go by what most leading economist, including Joseph Stiglitz, would have it.
The question should, instead, be whether the intervention is pursuing a good, reliable and effective strategy and has, so far, brought about positive outcomes, at least in some intervention areas.
This, in this writer's opinion, would have been a better an issue members of opposition parties should have focused on, and pressed the government to critically examine and show the positive and evident results that the government's intervention in the market has so far brought about, as well as identify intervention areas that resulted in making matter worse.
According to the prime minister, the government is well aware of how and when it will intervene in the market, and it has already incorporated this knowledge in its development strategy. The government will intervene in market failures which entail disaster for the lives of the people or become bottleneck to development, provided that it has the capacity to do so, according the prime minister. This, he said, is an effort to help revive the market. If the market remains to be a failure, the government will continue to intervene in it, Meles said. "Our goal is development and the improvement of the lives of the society. If the market takes us there, it is ok with us. If the government's intervention takes us these, the same is true." The prime minister then enumerated a number of interventions the government had taken and the consequent encouraging results it had registered.
But the long-term effectiveness of the state's intervention in market failures or the strategies and policies pursued to achieve a longer term solution, seems less examined and investigated as the question itself did not arise in the first place.
Stiglitz did not stop at saying that government intervention in developing countries is important, or that the government can play important roles in developing countries; he also warned that the government could fail to do so and make matters even worse.
"How can one be confident that the government itself will not mess up or make matter worse than the original market failures - sometimes called the problem of governance?" he wondered.
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To this end a critical examination of the government's intervention in markets is therefore of paramount importance.
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