ntrod tion 1.11
challenges could only be faced properly once the the needy cannot be left to the private
state and the market both are given a balanced sector as this is a loss-making exercise. It
role in an economy—the balance to be defined by means, the state will have to take the sole
its present condition and the direction of future responsibility or may need to expand its
goal of the economy. Striking the right balance role in such areas—as we see it in post-
between the role of the state and the market in reform India.
the economies came to be known as the process of As the private sector becomes capable of
economic reform in the post-WTO world. playing the proper role in producing and supplying
If we analyse the need of an economy, we see the private goods, state saves its important human
some compulsory roles for the state in it: and economic resources which is transferred to
(i) If the regulation and control of an take care of the production and distribution of
economy is left to private individuals public goods.
or groups (i.e., firms) they will be using Basically, the WB study, the East Asian
the regulatory powers to maximise their Miracle (1993), recognises the above-given shift
profits and returns at the cost of others. of one kind of mixed economy to another kind of
That is why this role must rest with mixed economy—in the cases of the Malaysian,
the state. It looks more logical in the Thai and South Korean economies—taking place
democratic political set-up, wherein the since the mid-1960s. Experts believe that this shift
interest of the largest numbers is being could not take place in time in India. And once it
represented in the regulatory provisions. started (1991–92) it was too late and this choice
was not voluntary but obligatory. The East Asian
(ii) The responsibility of producing and
economies had gone for the same kind of reform
distributing private goods to the people process but by their choice.
could be well handled by the private
sector as this is a profit-fetching area. The
Washington consEnsus
state should not burden itself with this
responsibility as this could be well taken The term ‘Washington Consensus’ was coined by
up by the private sector. But in the absence the US economist John Williamson7 (in 1989)
of the proper presence of the private under which he had suggested a set of policy
sector in an economy, many countries in reforms which most of the official in Washington
the world gave this responsibility also to (i.e., International Monetary Fund and World
the state; India being one among them. Bank) thought would be good for the crisis-driven
But as the private sector became capable, Latin American countries of the time. The policy
in some countries this responsibility was reforms included ten propositions:
given up by the state in favour of the (i) Fiscal discipline
private sector and better development has (ii) A redirection of public expenditure
been possible in those economies. In this priorities toward fields offering both
sense, India delayed this process while in
7. John Williamson, ‘What Washington Means by
Indonesia, Malaysia, Thailand and South
Policy Reform’, Chapter 2 in John Williamson
Korea allowed entry of the private sector (ed.), Latin American Adjustment: How Much Has
much earlier. Happened?, 1990; Institute for International Economics
and John Williamson, ‘What Should the Bank Think
(iii) The responsibility of producing and About the Washington Consensus’, Background
supplying the social/public goods to Paper to the World Bank’s World Development Report
2000, Washington DC, July 1999.