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Redefinition of economic functions of contemporary state. Ph.D . Renata Przygodzka. Aim of the lecture :. An attempt to indicate state economy functions at the beginning of 21st century , with reference to traditional views of C lassical school as well as K eynes’s school.

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Redefinition of economic functions of contemporary state

Redefinition of economicfunctions of contemporarystate

Ph.D. Renata Przygodzka

Economics and Management Department at University in Białystok


Aim of the lecture
Aim of thelecture:

An attempt to indicate state economyfunctionsatthebeginning of 21st century, withreference to traditionalviews of Classicalschool as well as Keynes’sschool

Economics and Management Department at University in Białystok


The structure of the lecture
Thestructure of thelecture:

  • State economicfunctionsaccording to Classicalschool

  • State economicfunctionsaccording to Keynes’sschool

  • Conceptions of economicfunctions of contemporary state

  • Conclusions

Economics and Management Department at University in Białystok


State economic functions according to classical school
State economicfunctionsaccording to classicalschool

Theview, thatconductaimingat profit magnification and utilityinconditions of excellentrivalry will convertactivity of many subjectsintosocialoptimum throughthe medium of market strenghts, determinedthe role of the state ineconomy for a long time.

Economics and Management Department at University in Białystok


State functions as a ‘guardian’:

  • Externaldefence,

  • Being on guard of private property and justiceadministration,

  • Maintenance of some public appliances.

Economics and Management Department at University in Białystok


The most important views and theories of classical school
The most importantviews and theories of ClassicalSchool

  • Classicaltheory - sensu stricte (A. Smith, D. Ricardo, J.B. Say);

  • „Socialliberalism” (J.S. Mill);

  • German school(F. List, A. Wagner);

  • Ordoliberalism(F. Böhm, H. Grossman-Dörth, W. Eucken, W. Röpke, A. Rüstow, L. Erhard, A. Müller-Armack);

Economics and Management Department at University in Białystok


The most important views and theories of classical school sequel
The most importantviews and theories of ClassicalSchool– sequel

  • TheConception of Welfare State(A.C. Pigou, G. Myrdal);

  • Monetarism(M. Friedman);

  • Economics of supplyineconomyaspect (I. Kristol, Laffer);

  • School of RationalExpectations(R. Lucas);

  • Austrianschool(L. von Mises, F.A. von Hayek);

  • Public SelectionTheory (J. Buchanan, G. Tullock)

Economics and Management Department at University in Białystok


State functions according to classicists
State functionsaccording to Classicists:

  • takinginterventionalactionsonlyindistinctlystatedcases of inefficiency of the market, inthesituationinwhichprivatesectoractionsare not inaccordancewith public policy, whereasthisinterventionshoulddepend on theusage of instruments withparametricaltype (ie. taxes, subsidies) and favourcreationof privatemarkets;

Economics and Management Department at University in Białystok


State functions according to classicists1
State functionsaccording to Classicists:

  • providing „fine public goods”, ie. law and public order, national defence, public infrastructure as well as defining and executting of property rights;

  • providesstable and predictablemakroeconomicalconditions by properfiscalpolitics, monetary and curencycoordination;

  • Liberalisation of an international trade.

Economics and Management Department at University in Białystok


State economic functions according to keynes s school
State economicfunctionsaccording to Keynes’sschool

MainKeynes’sschooltrends:

  • J. M. Keynes Theory - sensu stricte;

  • neokeynesism(P.A. Samuelson, J. Tobin, B.C. Greenwald, J.E. Stiglitz);

  • postkeynesism(R. Harrod, J. Robinson, M.Kalecki, N. Kaldor, P. Straffy).

Economics and Management Department at University in Białystok


In general according to Keynesistseconomical state functionscan be brought down to:

  • allocationalfunction,

  • redistributionalfunction,

  • stabilizatory function.

Economics and Management Department at University in Białystok


Realization of every of themresultfromthenecessity of counteractionto inefficiency of a trade mechanism, as well as on themikroeconomicallevel (public goods, externaleffects, uncompetitivemarkets, transactionalcosts and asymmetricalinformation) alsomakroeconomical (unemployment, inflation, coniuncturalcycle, uneveneconomic growth). Theseinefficiencieslead to inefectiveallocation, and throughthis to unstabilityorsignificantinequality.

Economics and Management Department at University in Białystok


Conceptions of economic functions of contemporary state
Conceptions of economicfunctions of contemporary state

Thewhole of political, economical and socialchanges of thelastdecade of 20th centuryhasbecame an inspiration to search for an answer to newquestionsmainlyconnectedwithdirections and range of economical role of the state. Atthebeginning of the 90-ies a conceptioncalled „Washington’sconsensus” appeared, being an attempt of combiningguidelines of bothschoolsaimedateconomicpractice.

Economics and Management Department at University in Białystok


Aims of the consensus:

To provide„form of buildingdynamicalprivatesector and stimulation of economic growth”

Economics and Management Department at University in Białystok


Consensus assumptions (state functions):

  • maintainingbudgetdeficiency on thelowestlevel(not to lettheriseininflation) ,

  • Decreasingtaxes,

  • Drifting public expencesfromtraditionalfields, thatareexposed to politicalinfluences to neglectedareaswith high economicrate of return and relativelyprofitableredistributionaleffects,

Economics and Management Department at University in Białystok


  • Conductingtheliberalization of a trade policy,

  • Privatization of state enterprises,

  • Being on guard of private property and freecompetition

Economics and Management Department at University in Białystok


Postwashington’sconsensus”

Aims:

  • economical growth stimulating, as inWashington’s consensus,

  • improvement of the standard of living, health care and education

Economics and Management Department at University in Białystok


  • Searching for theways of permanent economical growth takingintoconsiderationprotecting natural sources and maintaininggoodenvironmental state,

  • Searching for theways of justicedevelopement, whicheffectswould be available for society,

  • Searching for theways of democraticaldevelopement, inwhichsocietycouldactivelyparticipate.

Economics and Management Department at University in Białystok


State economicfunctionsaccording to theWorld Bank:

  • securingmakroeconomic and mikroeconomic environment, whichcreates correct stimuli for effective business;

Economics and Management Department at University in Białystok


  • providinginstitutionalinfrastructure (private property, peace, law and order, rules) thatfavourstheeffectiveness of long-lastinginvestitions;

  • Guarantee of basiceducation, health care and technicalinfrastucture, thatrequires business and protection of natural environment.

Economics and Management Department at University in Białystok


Table no 1. Functions of the state

Source: study based on The State in the Changing World. World Development Report. Oxford: Oxford University Press, 1997

Economics and Management Department at University in Białystok


Contemporaryeconomiesarefunctioninginthoroughlydifferentconditionings. Theseare:

  • globalisation,

  • internationalisation,

  • integration,

  • liberalisation,

  • infomatisation,

  • technitisation.

Economics and Management Department at University in Białystok


In the face of unreliability of the market mechanism and state unreliabilityatthe same time, economicfunctions of the country ought to constitudecertainbalance and whatismoreserveelimination of bothinefficiencies.

Economics and Management Department at University in Białystok


Democraticalidealism”

„Everywell-functioningeconomyrequires a balancebetween state and market. Thisbalancecan be differentindifferentcountries and canchangeintime,it will alsodifferaccording to sectors and problems.”

J. E. Stiglitz. CrazyNinetees, publishing company PWN, Warsaw 2006, pg. 247

Economics and Management Department at University in Białystok


Such a balancewould be alsothebestmethod to achievelong-lasting growth and effectiveness. Itwouldmean „Reinforcingthe role of the country in one field as well as diminishinginothers.

Economics and Management Department at University in Białystok


Amongdomains, whichrequiresmore state activityStiglitzhasmentioned :

  • Consumer protection(againstdangerous products and monopolisticpractises),

  • Investorsprotection,

  • Supporting scientific and technologicalresearches,

  • supportingeducation,

  • environmentalprotection,

  • Increasingthefeeling of citizens’ safetyin field of health care, securingretirementpension and unemployment.

Economics and Management Department at University in Białystok


Whereaslimitting of the state activityought to concern :

  • Eliminationorrestructurisation of surcharges to agriculture,

  • subvention for great corporations,

  • eliminatinginterventionthat limit therivalry,

  • running a business.

Economics and Management Department at University in Białystok


Therefore, a fundamental duty of the state should be aspire to improvetheefficiency and effectiveness of actionsinthesefieldsinwhichthe market isunreliable, and atthe same time by withdrawalfromareasinwhichtheefficiency of mechanismhasincreased.

Economics and Management Department at University in Białystok


Conclusions
Conclusions

  • Traditionalviews of economists on the role of the state ineconomyfocusattention on twotendencies,ie. Classical and Keynes’sschool. First mentionedglorifiesthe role of the market, whilesecond one isresponsible for realization by the state threefundamentalfunctions,ie. allocational, redistributional and stabilizatory functions.

Economics and Management Department at University in Białystok


Conclusions sequel
Conclusions– sequel

  • Theconception of J. E. Stiglitzis an attempt to combinetheories of bothClassical and Keyne’sschools, consequentlybalancingthe role of the state and the market ineconomy. Its idea iscomplementing and not replacing and constantaspirations to risetheeffectivenessintheseareaswheretheactivity of the state ismoreexpedient.

Economics and Management Department at University in Białystok


Conclusions sequel1
Conclusions– sequel

  • Thisbalance, distinctindependence upon specificconditionings of particulareconomies, mightconstitutethebestmethodinachievingthelong-lasting growth and effectiveness, and concern for citizen’swelfare.

Economics and Management Department at University in Białystok


Conclusions sequel2
Conclusions– sequel

  • Theconception of economicalfunctions of contemporary state of J. E. Stiglitzhas great opportunities for becoming a specificaxis, aroundwhichtheoretical and empiricalresearch will be developed, as well as attempts of theirimplementationin developing countries.

Economics and Management Department at University in Białystok


ThankYouvery much for Yourattention.

Economics and Management Department at University in Białystok


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