The Role of Government versus the Market for Sustainable Development

Moving directly on from the general overview offered by the first chapter, this chapter looks closely at the issue of the appropriate role for government in promoting sustainable private sector-led economic development. Defining the role of the government in economic management will depend upon what line is drawn between the government’s role and that of the economy’s private sector. This contentious issue is traced back to the discussion over the feasibility of the socialist economic calculation during the early twentieth century (originally initiated by Ludwig von Mises and Oscar Lange) and has continued right through to the more recent debate on the desirability of a government-led economic development strategy in the 1990s. In spite of the innumerable works of economists with radically varying viewpoints, the ongoing debate can ultimately be reduced down to the simple issues of market failure or government failure. Traditionally, market failures have been seen as the most justifiable reason for active government intervention. However, it should also be emphasized that market failures are in most cases a reflection of institutional failure — which is in essence a form of government failure.