Incentives and Growth: A Summary Appraisal

The papers presented at this conference and the many comments which they stimulated during the general debate show that (pecuniary and non-pecuniary) incentives and disincentives do matter in determining the capacity of an economy to grow, to provide jobs, to lead or catch up with technological innovation, and ultimately to raise the standard of living of the population. Furthermore, it was emphasised that governments, by intervening for a particular purpose in the economy, often manipulate and disturb the pattern and structure of incentives, thereby creating policy-induced uncertainty and reducing efficiency in resource allocation (even in cases in which government intervention aims at offsetting existing market failures). The inevitable result seems to be a decline in the growth potential of the economies, apart from unintended income-distributional effects. Though some speakers noted that the prevailing theory is not unambiguous with regard to the interactions between incentive structures and the pace of growth, Professor Balassa’s comprehensive survey, based on a great deal of empirical evidence on industrial, developing and socialist countries, leaves little doubt about how far-reaching the adverse effects of anti-market government intervention can in reality become.