Role of Government in Economic Development
Role of government in economic development
In modern times, State participation in economic activity can hardly be a matter of disagreement. The free play of economic forces, even in highly developed capitalist countries, has often meant large unemployment and instability of the system. Hence, there is a considerable dilution of the laissez faire principle and the governments are now called upon to intervene in economic fields which were considered sacrosanct. In these advanced countries, State intervention has been invoked to ensure economic stability and full employment of the productive resources of the community.
But state action is all the more inevitable in under-developed economies. Here the state has to play a vital and ever-expanding role to accelerate die process of economic growth. These countries are struggling hard to get rid of poverty and to attain higher living standards. In an under-developed economy, there is a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a stationary state of under-development equilibrium. The nasty circle of developing equilibrium can be broken only by a complete management planning of the procedure of economic growth.
It is obvious that a high rate of investment and growth of output cannot be attained in an under-developed country simply as a result of the functioning of the market forces. Even the operation of these forces is hindered by the existence of economic rigidities and structural disequilibria. Economic development is not a spontaneous or automatic process. On the contrary, it is evident that there are automatic forces within the system tending to keep it moored to a low level. Thus, if an under-developed country does not wish to remain caught up in a vicious circle of poverty, the Government must interfere with the market forces to break that circle.
In the initial phase, the process of development in an under-developed country is held up chiefly by the shortage of the essential social and financial overheads like technical colleges, schools, and research institutes; railways and hospitals, ports, roads, harbours as well as bridges. Provision of these overheads requires very large investments. Such investments will lead to the creation of external economies, which, in their turn, will provide incentives for the expansion of private enterprise in the field of industry as well as of agriculture.
Private enterprise will not undertake investments in social overheads, because the returns from them in the form of an increase in the supply of technical skills and higher standards of education and health can be realised only over a long period. Also, it will accrue to the whole society rather than to those entrepreneurs who incur the necessary large expenditure on the creation of such costly social overheads. Therefore, investment in them is not profitable from the standpoint of the private entrepreneurs, howsoever productive it may be from the broader interest of the society. This indicates the need for direct participation of the government by way of investment in social overheads, so that the rate of development is quickened.