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December 25, 2022
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The role of states in the economy

Gustavo Volmar

It is surprising that decades of debate have not been enough to definitively settle the controversy about the role of states in economies. Today it is a topical issue that emerges and occupies a prominent place in electoral campaigns and in the programmatic platforms of political parties. The cause of its notable persistence lies in the fact that the debate is nourished by social inequalities, and these in turn are present in all governmental systems.

Historical experiences have favored the position that the role of condition must be subsidiary, acting only in those activities that the private sector cannot perform adequately. As with many other things, however, the problem is in the details. This is so because a value judgment intervenes regarding the work carried out, and it may happen, as frequently happens, that the private sector is willing to carry out a task, but is judged that the condition can do better. In these cases, those who advocate for a broader state intervention will understand that it is justified that the condition take over this task.

Aside from the political connotations involved, there are economic elements in the background. so that the private sector interested, the work must be profitable. That makes it possible that even though it can perform well, its market price exceeds the affordable level for the users it must reach. In principle, the condition could subsidize that difference so that the private sector assume the commitment, but for the supporters of state management this mechanism implies allocating public funds for the benefit of individuals, losing control over the results and ceasing to fulfill the functions that correspond to it.

The consequence is that in countries such as the US, the UK, Colombia, Chile and Brazil, the role of the condition be a hot topic, divisive and seized upon by factions in their struggle for power.

PhD in Economics from Columbia University specialized in companies, markets, forecasts and risk.

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