The market versus the state.

Abstract

AbstractThis chapter examines the ideas of mainstream economics since they underpin much of the thinking of the centre to the right of political thought and provide the basis for economics-based analysis of state activities. While mainstream, market economics is not without its critics, in the context of the current triumph of capitalism it seems appropriate to consider the economic arguments for the role of the state in a primarily market economy. Four broad functions of government are discussed: national defence; maintenance of law and order; market failure; and social/political arguments. Market failure is discussed in terms of: public goods and services; externalities/neighbourhood effects; mixed goods; merit goods; option demand; infant industries; size of project; and natural monopoly. Social and political arguments are discussed under the following headings: equity/humanitarian arguments; economic management/development; incidental enterprise; and tradition. A number of further issues on the role of the state are discussed, including the question of profit- and loss-making enterprise; government failure related to government size; the question of whether governments should be providers or facilitators; and the effects of globalization. Some recent history on the changing role of the state in Britain is reviewed.