A Socially Sensitive Developmental State: Key Economic and Politico-Institutional Aspects

The essential “opposition” between market and state has long been debated. Activities that fall in the government or private sector vary by time and space. This division cannot be decided on political principle alone (Karagiannis 2002). The first quarter century of the post-World War II period was generally characterized (at least in OECD (Organisation for Economic Co-operation and Development) countries) by economic growth, high levels of employment alongside state activism, and belief in beneficial powers of government. Government intervention in the economy, discretionary fiscal and monetary policies, modest restrictions on trade and the like coincided with low unemployment and inflation, and economic stability and security. The past 40 years have been characterized by much lower rates of economic growth in the OECD nations (though with rapid growth in Newly Industrialized Countries, (NICs)) and a general decline of support for activist governments. Yet, in many cases, the ratio of government spending to GDP rose due to increasing entitlement obligations, and governments often ran substantial fiscal deficits. The active state is being rolled back, and “let the market decide” has become the main policy gospel for both developed and developing countries (Arestis and Sawyer 1998, 1).