Menu

Market Failure and Government Failure in Europe

0 Comment

For several decades, a debate has been raging in development economics on the relative virtues of the free market as opposed to state intervention. With the help of analytical models of a market economy, the interventionists have demonstrated what they have considered as serious instances of market failures. That is to mean, the inability of a market economy to reach certain desirable outcomes in resource use. The protagonists of the free market on the other hand, compile impressive lists of ill-covered and counterproductive policy measures implemented by the governments of different nations at different times. As a result, there has been serious wastage of resources in the economies of these countries.
This debate has inevitably remained inconclusive. The analytical results on market failure do not disappear in the face of the evidence that most governments have performed rather badly. In cases where there appears to be scope for improvement over the market outcome, the search for corrective measures continues. Some protagonists of government failure tend to question the significance of such market failures. Some have voiced skepticism about the ability of governments to take any action in the economy which is not counterproductive. However, none of them has been able to explain why less developed European countries failed to grow during the first half of the 20th century.