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Lecture 5

POL201 Lecture 5: Lecture 5 Notes.docx

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Political Science
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Abbas Gnamo

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Thurs. May 29, 2014
Lecture 5: Development Theories III: State & Market
Development Strategies: State Vs. Market
There are great variations in how different countries, during different periods of time,
have arranged the interactions between state and market:
1. Interventionist state and a mixed economy or
2. A non-interventionist state and free market economy
The debate has been largely about a state-managed versus market led development
Early development economists recognized the role of government in providing “social
overhead capital” or “infrastructure” to facilitate economic development
Others argue that government should undertake activities that would compensate for
“market failures”
*Interventionist mixed economy= embedded liberalism
State and Markets
Historical Perspective:
oThe question of the state’s proper economic role has been at the center of political
and economic debates for hundred of years:
First in Western industrialized economies, the debate continues unabated
following the current economic crisis
More recently in the strategies of third world
oDuring the 16th & 17th centuries, major European power was guided by the
philosophy of mercantilism, which viewed a nation’s economic activity as a
means of enhancing the political power of the state and its monarch
oGovernment, consequently, was viewed as “both source and beneficiary of
economic growth”
*Mercantilism – Early form of capitalism (realism)
Realism: to see the world as it is, not as it should be (Human nature is bad)
Power politics and politics with no morality
oThe perspective was sharply challenged by the 18th Century Scottish political economist
Adam Smith, who favored a minimized state that allowed market forces a relatively free

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POL201Y Thurs. May 29, 2014 Lecture 5: Development Theories III: State & Market  Development Strategies: State Vs. Market • There are great variations in how different countries, during different periods of time,  have arranged the interactions between state and market: 1. Interventionist state and a mixed economy or 2. A non­interventionist state and free market economy  • The debate has been largely about a state­managed versus market led development  strategy  • Early development economists recognized the role of government in providing “social  overhead capital” or “infrastructure” to facilitate economic development • Others argue that government should undertake activities that would compensate for  “market failures” *Interventionist mixed economy= embedded liberalism  State and Markets •  Historical Perspectiv : o The question of the state’s proper economic role has been at the center of political  and economic debates for hundred of years:  First in Western industrialized economies, the debate continues unabated  following the current economic crisis  More recently in the strategies of third world o During the 16  & 17  centuries, major European power was guided by the  philosophy of mercantilism, which viewed a nation’s economic activity as a  means of enhancing the political power of the state and it’s monarch  o Government, consequently, was viewed as “both source and beneficiary of  economic growth”  *Mercantilism – Early form of capitalism (realism)  Realism: to see the world as it is, not as it should be (Human nature is bad) Power politics and politics with no morality o The perspective was sharply challenged by the 18  Century Scottish political economist  Adam Smith, who favored a minimized state that allowed market forces a relatively free  hand o The following century, Marx, reacting to the exploitative nature of early capitalism,  proposed assigning the state a dominant role, at least initially, 
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