Mokhova Natalia

(Ministry of Economy of the Russian Federation)

   State (or public sector) should implement such functions in market economy which it does more efficient and successful than the private one. That is why, public expenditures on social projects should be done in accordance with demand on such projects and positive externalities which are connected to the institutional structure of economy.

   State enterprises usually produce public goods and state control is well founded in case of natural monopoly or informational asymmetry. In that case neither subsidies nor taxes can ensure control of consumers for the market. Moreover, there are other arguments for public production, e.g. high dependence of the economy on particular sub-sectors, market failures, and undevelopment of capital market.

   Undevelopment or inefficiency of capital market could cause to insufficient private financing of perspective projects. Potential long-run returns of such projects may not be show in security prices. In is especially true for transition economies and particularly for Russia. However, even in developed market economies some of the efficient extra-long-term projects were implemented by public sector.

   There are two basic schools of thought on development policy toward developing countries. One is the market approach advocated by the IMF, the World Bank and other international organizations, and by Western economists. This method involves rapid reform, including the shrinking of the government sector and an immediate shift to economic liberalization through privatization and other means. This approach applied Neo-Classical views of 1980s, which took the place of Neo-Keynessian Structuralism of 1950-1970s. The latter was based on acknowledgement of existence of market failures and the rule of government in fighting against them. That period was characterized in creation international and regional financial institutions of development. One should note the rapid capital formation during this period. The former policy was formed when Debt Crisis in Latin America arose, and it tried to employ so called Structural Adjustment Lending for developing countries. Nevertheless, both activities did not allow to achieve more or less appropriate results.

   The other approach, which is supported by development aid organizations in Japan, recognizes the importance of market economy but calls for the transition process to be based on ling-term plans that reflect the circumstances of individual counties. This approach also places a more positive value on the role of government. Theoretically it is based on Revisionism of Neo-Classical views. Some economists, albeit, a minority, within the World Bank support the Japanese approach because of reservations that they have about the orthodox market approach.

   The debate was triggered by the publication of a World Bank report about the role of public policy in the economic growth phenomenon known as the "East Asian Miracle" (World Bank, 1993). This report attracted considerable international interest and was widely discussed in the media and various international forums. The level of interest was high because the report was seen as a signal that some within the World Bank had doubts about the precedence give to market functions. The report states that very stringent conditions are prerequisite in a market economy system; therefore, in developing countries and transitional economies where the market economy is incomplete, government should take an active role in the development of the system. Among the key factors of East Asian Miracle there should be noticed the following:

• strong fundamentals (stable macroeconomics, high human capital, effective financial system, openness to foreign technology, high savings and high investment rates, etc.);
• selective interventions (export promotion, financial repression, directed credit, etc.);
• strong competitive market-based (export and domestic competition) and contest-based (export facilitating, investment coordination, information exchange, etc.) structures.