Development and Finance from issue 2008/3

György Csáki

The Developmental State – A New Approach

- Abstract -

JEL O-10

Classical and neo-classical economics do not recognise the function of the state as a developer. According to neo-classical economic theory, since the 1860s at least to the Great Depression of 1929-33, the economic system operated in accordance with the market, and ultimately the input of consumers. The players of the economy - primarily corporations, but also households - adapt flexibly to the demands of the market. The only activities and services where the state has to intervene are those where the market does not function perfectly - e.g. defence, education, and the safety of the public and property. Due to the effect of the Great Depression of 1929-33 - which so far has been the most devastating economic crisis in the history of the world economy - many elements of neo-classical economics were modified. In the 25 years following World War Two, Keynesian economic philosophy became mainstream public thinking, which - denying the dogma of the perfect market. In terms of the perspectives open to the developmental state, a certain measure of optimism can be derived from the way developmental states in East and South-East Asian - and also in Europe - managed to uphold national economies organically integrated into world economy by assisting an export-led orientation.

György Csáki, CSc, professor of economics (Szent István University, Institute of International Economics)

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