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State versus Market_ Forever a Struggle_ - Brookings Institution

State versus Market_ Forever a Struggle_ - Brookings Institution

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THURSDA Y FEBRUA RY 1 0, 2 01 1 OCTOBER 23, 2006 — Few would disagree with the view that in Russia state power has been on the rise since the year 2000, reversing a trend during the 1990s towards a dominant market. Many signs point towards this: an expanding state budget, a growing number of government bureaucrats, increasing and now overwhelming state ownership of national oil and gas resources, growing engagement by government in the running of large private businesses, a stalling of reforms designed to reduce bureaucratic tape and inspections, and the control by the government over much of the television media and key newspapers. Was this reversal to be expected? Is it good or bad for Russia? Will it continue? It may help to take a look beyond Russia in trying to answer these questions. Economic historians tell us that swings in dominance between state and market go back many centuries. Over the last 200 years these swings seem to have gathered in speed. The industrialization process of the West in the 19th century was characterized by a dominant market and a small government sector. After World War I the state took over, not only in the Soviet Union. Western governments also assume growing roles after the Great Depression and then during and after World War II, with the rise of socialist ideology, the economic theory of "market failure" and the belief in planning by government as a way to promote a stronger economy and a better life for its citizens. By the late-1970s the socialist, central planning and statist models ran out of steam around the globe, as a backlash of neo-liberalism, based on the ideas of Milton Friedman and translated into the policies of Ronald Reagan and Margaret Thatcher, took hold in many parts of the world, including in Russia after 1990. "Government failure," excessive size of government and too much state intervention were blamed for many of the world's ills. Smaller government and a dominant market were seen as the solution. Perhaps we should not have been surprised to see yet another backlash by the end of the 20th century as opposition to the neo-liberal "Washington Consensus" and to a market-driven globalization process became a slogan for Nobel- prize winning economists and street protestors alike. And so a reversal in Russia also was probably to be expected as President Putin took over from President Yeltsin. But something else has happened in the last few decades besides the quickening swings in the state-market pendulum: On closer inspection it turns out that the apparently world-wide swings of opposing views and policies are actually dissolving into a multitude of swings in different directions in different countries. What is more, the neat dividing line between public state and private market seems to disappear as we look more closely. Let's consider both
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