Role of Government in Economic Development
The below article is an excerpt taken from the academic book written on Economics.
Green Fields are considered "SACROSACNT"
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 systems.
Hence, there is a considerable dilution of the "laissez-faire" principle (advocates that economic success is inhibited when governments are involved in business and markets), and the governments are now called upon to intervene in economic fields which were considered "SACROSANTCT".
In these advanced countries, State intervention has been invoked to ensure economic stability and full employment of productive resources of the community.
But state action is all the more inevitable in underdeveloped economies. Here the state has to play a vital and ever-expanding role to accelerate the process of economic growth. These countries are struggling hard to get rid of poverty and attain higher living standards.
In an underdeveloped 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 underdevelopment equilibrium. The vicious circle of underdeveloped equilibrium can be broken only by a comprehensive government planning of the process of economic development.
It is obvious that a high rate of investment and growth of output cannot be attained in an underdeveloped 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 underdeveloped country does not wish to remain caught up in a vicious 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 developing an underdeveloped country is held up primarily by the lack of basic social and economic overheads such as schools, technical colleges, research institutes, hospitals and railways, roads, ports, harbors, and bridges.
Provision of these overheads requires very large investments. Such investments will lead to the creation of external economic which, in their turn, will provide incentives for expansion of the private enterprise in the field industry as well as agriculture.
Investments in economic overheads require huge outlays of capital which is usually beyond the form such investments are quite uncertain and take very long to accrue. Private enterprises in generally interested in quick returns and will seldom be prepared to wait so long.
Nor can private enterprises easily mobilise resources for building up all these overheads. The state is in a far better position to find the necessary resources through taxation, borrowing, and deficit financing-sources not open to private enterprise. Thus, private enterprise lacks the capacity to undertake large-scale and comprehensive development program. It also lacks the necessary approach to development.
The role of government in development is further highlighted by the fact that underdeveloped countries suffer from a serious deficiency of all types of sources and skills, while the need for them is so great.
In these circumstances, what is needed is a wise and efficient allocation of limited resources. This only the state is best fitted to de through the central planning, according to the scheme of priorities well suited to the country's conditions and needs. Until the country has attained a state of self-sustained growth, the government must make determined and conscious efforts to push the economy through the take-off period of development.
Besides, the conditions in underdeveloped countries are not conducive to rapid economic growth. The tendency towards the formation of monopolistic organizations under the free enterprise system, the unpreparedness, and reluctance on the part of entrepreneurs to make investments in a scheme of collective values, the lack of attention to the long-run problems of the economy, and too much concentration on the immediate prospects of profits, the absence of integration among the various sectors of the economy and the possibility adverse economic results arising from uncoordinated economic decisions, constitute the major defects of the private enterprise system, A decisive role by the government is called for to rectify these defects to overcome obstacles to economic growth.
Provision of Economic and Social Overheads:
If economic growth is to be accelerated, it is necessary for the government to provide an adequate measure of economic and social overhead capital and services or infrastructure. economic infrastructure includes transport facilities, e.g., railways, roads, harbors, airfields, e.g., means of communications, e.g., postal telegraph and telephone facilities, electric and even atomic energy, irrigation facilities, etc. The social overheads or infrastructure consists of educational institutions (schools, colleges, and universities). both for general education and technical training, public health, and medical aid facilities, housing, water supply, and other welfare schemes.
The availability of adequate overhead facilities brings about external economies to other industries, lowers their capital coefficient, and thus improves the efficiency of the general investment, making possible a more rapid rate of economic growth.
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