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One of the most important issues under debate in policy circles in recent years is the appropriate role of governments and markets in fostering economic development. Over the last two decades, governments have assumed a smaller role as privatization and de-regulation have led to more activities being undertaken by the private sector. As a result, many goods and services previously supplied publicly are now supplied privately.
The justification for expanding the role of the market is that government’s are for less efficient in supplying goods and services, a doctrine known as “government failure.” But the market also fails of some tasks and “market failure” is commonly referred to as a justification for expanding the role of the state.
The present report argues that market failure and government failure need to be analyzed together, and that effective policy formation needs to take account of both simultaneously. The report emphasizes that the issue is less whether market and state are alternatives, but rather that they are complements.
The report represents the ongoing work of the Division for Public Economic and Public Administration on the theme of evolving issues in economic governance. Future work will continue the discussion of important concepts, analyze issues in terms of evidence and experience, and seek to formulate directions for thinking about policies for development.