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April 07, 2007
Rise of the 'Smart State'
The emerging economies today are witnessing the rise of the 'Smart State'. The role of State and market in most emerging economies have changed spectacularly in recent years. While the relation between these two institutions was never static, the pace of transformations in the interface between them has changed quite radically over the last decade. The interface between Government and the marketplace has pervaded every sphere of our socio-economic existence, altering dramatically our lives and thought processes. The conventional, dominating wisdom of the virtues of pervasive state intervention is now under close scrutiny if not already discredited and abandoned. At the same time, writing an obituary of the State has proved to be premature, as the State has started playing an important role in ensuring a stable marketplace and keeping the countries a preferred destination for investment. The academic debate that spawned over the last decade and a half or so has been fascinating, to say the least. Hope and optimism for the future met with the prejudices of economists raised in a diet of controls and regulations . For the policymakers, the challenge lay in steering the economy from the shackles of control towards greater freedom, through the inevitable tightrope walking in the midst of the conflicting pushes and pulls of societies in transition.
The essential features of such a transformation were:
a) a retreat of the producer state,
b) regulatory restructuring and
c) a more focused approach of the State as facilitator and provider of welfare services.
In the Indian context, the retreat of the producer state has been very slow in India when compared with the international experience. Given the socio-political realities of a country with low per capita income and mass poverty and with a low position in the country rankings of Human Development Index ( HDI) , the welfare role of the State will remain quite substantial in the coming years. The rationale for regulation lies in the search for a public policy that makes markets work better, while avoiding the dangers of excessive burden by treating regulation as a free good and the scope for regulatory capture by the few suppliers compared to the large dispersed consumers. More generally, the objectives of regulation are to avoid monopoly power, foster competition and protect the consumer's interest. In the new millennium, thus, the State in emerging markets has started playing a major role in setting the rules of the game by providing effective regulation of a market based economy.
The States and the sub-States today engage in healthy competition to attract investors, to promote employment generating projects and in the alleviation of poverty. Inward looking models are giving way to approaches aied at benefiting from a globalized world. The State's ability to project the economy to the world is akin to that of a smart salesman. The better the selling abilities , the better the results. But a smart state cannot sustain itself without a smart socio-economic structures. Economic fundamentals thus will play an important role in enabling the State to project emerging markets to the world.
( Full Paper at sunandoroy.googlepages.com/workingpapers)
Posted by sunandoroy at April 7, 2007 09:39 AM
