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CHAPTER FIVE: The State and the Market

Study

Market economies have become nearly universal since the end of the Cold War, with the state involved to a varying degree in each instance. In such situations, the government does not directly control the economy, but it can and usually does try to encourage economic growth and influence how the benefits of that growth are distributed. This chapter analyzes the fundamental relationship between the modern state and market economy, contemporary debates over economic policy, and the questions raised by globalization.

The roles the state has come to play can be divided into essential roles, beneficial roles, and politically generated roles. The essential roles are providing security, establishing and enforcing property and contract rights, and creating and controlling currency. Roles the state commonly plays in the modern market economy that are not absolutely essential, but are usually considered beneficial to the overall economy, include providing infrastructure, education, and health care and preventing or regulating monopolies.

Major economic theories lie behind the debates over how governments should intervene in the market. The central debate is between Keynesian and monetarist theories of when, why, and how the state ought to attempt to guide the economy. Overall, economic policy remains in flux. The expanded global market and capital mobility also raise questions about the level at which political responses to economic problems can and should occur. More and more analysts argue that new global problems require collective, global political solutions.