How State Interventions Impact Free Markets

Developmentalism

Developmentalism is a policy approach that emphasizes the role of the state in promoting economic growth and improving living standards by way of supporting a strong internal domestic market and using tariffs to keep imports from upsetting or undermining that internal strength. It emerged predominantly in the 1940s and 1950s in response to the Great Depression and World War II, and was widely adopted by developing countries during the post-war period. Developmentalism typically involves state intervention in key sectors of the economy, such as infrastructure and manufacturing, in order to promote industrialization and economic development (Klein, 2007). While developmentalism has come under criticism in recent years for its sometimes negative social and environmental impacts, it remains an influential approach to economic policymaking, particularly in the Third World.

Developmentalism is best understood as a political-economic doctrine that emphasizes the industrialization of developing countries. The goal of developmentalism is to promote economic growth and modernization by encouraging import substitution, state-owned enterprises, and investments in infrastructure, through formal structures in which diverse populations are obliged to use the same language and concepts (Smith, 1985). While developmentalism has led to some impressive economic achievements, it has also been criticized for its reliance on state planning and its failure to take into account the needs of the poorest members of society. In many cases, developmentalism has led to widespread corruption and economic inequality (Smith, 1985). As a result, while developmentalism may be able to spur short-term economic growth, it is often not sustainable in the long term.

One of the biggest weaknesses of developmentism with regard to the Third World is that it represents a new kind of neo-colonialism (Haque, 1999). Another weakness is that it prevents the free market from having true autonomy and thus from operating as it should due to all the state interventions and controls (Easterly, 2007). This is a disadvantage because the free market is an important tool for ensuring that scarce resources are allocated efficiently. In a free market, firms are able to produce goods and services at the lowest possible cost, making them available to consumers at the lowest possible price. This process of cost minimization results in increased economic activity and higher levels of employment. Additionally, the free market provides a mechanism for entrepreneurs to innovate and discover new products and processes. This innovation typically leads to improved living standards and increased economic growth (Easterly, 2007). Given these benefits, it is clear that the state should not intervene in or try to control the free market, as doing so would reduce economic activity, stifle innovation, and ultimately damage the economy. Yet, that is what developmentalism risks allowing to happen.