GLOBAL PERSPECTIVE

Globally, the roots of the State intervention in economic activities in the previous century can perhaps be traced back to early 30s when, in the wake of the Great Depression, Roosevelt tried to rein in the dubious behaviour of the wayward private enterprises in the US through the New Deal, which witnessed the setting up of the regulatory agencies like the Securities and Exchange Commission (SEC) and the onset of large federal deficits, public works expenditure and cheap money. The US Government's intervention involved support to markets when they failed to generate socially desirable outcomes and a check on the power of private monopolies. State intervention in commercial activities seemed to have got a further fillip with the perceived success of the Soviet industrialisation. This was followed by the large-scale state intervention / nationalisation during late 40s and 50s, all over the world, driven by the pressure / resource requirements of rebuilding the post War and postcolonial economies. There appeared to be an economic consensus around the world accepting public enterprises as inevitable part of the economy, especially to manage natural monopolies and the core industries. The lack of entrepreneurship, security of the country, concern for balanced regional development, employment generation etc., were some of the other major motivators for encouraging the public sector trend.

Thus, Britain nationalised its core industries, such as coalmines, iron and steel, electricity, gas, ports and shipbuilding. In post war France, the economy was divided into three segments - the private, the controlled and the nationalised. Public utilities, core and strategic sectors, telecommunications, airlines, automobiles were all either nationalised or brought under majority ownership and control. In the developing countries too, public sector came to acquire a major role. Here, the state intervention was fuelled by several other considerations, such as, the state of private entrepreneurship and managerial expertise, regional imbalances in industrial development, employment generation etc. It was thought that the social welfare objectives could be best achieved through comprehensive state intervention. This trend continued throughout 60s and 70s, in several countries.

Disenchantment with public sector started in 1970s. It was observed in many countries that the performance of the public enterprises was far below the expectations and worse than the private sector. The public sector seemed to perform well only when protected through Government created monopolies, entry reservations, high tariffs and quotas etc. The problems got further accentuated due to preemption of massive resources by the under performing public sector which left little money for more urgent social needs and public welfare. These problems were brought in sharp focus after the second oil shock of 1979, when it became clear that the experiments with Government ownership of commercial activities were not succeeding. This decade witnessed the start of the reversal of the trend.

A new trend of global integration began to emerge and countries all over the world, whether developed or developing, capitalist or socialist, started undergoing vast economic changes, witnessed by the decline in the role of the State in commercial activities and privatisation of state owned enterprises. By 1980s, privatisation had started in real earnest in several parts of the world. This was facilitated by the gradual integration of the world economies, which ensured that capital and goods flowed more freely to countries suffering from lack of resources. Foreign capital is now freely available to finance the large infrastructure projects, for want of which the domestic private parties were hitherto unable to come forward, and the State support was earlier necessary. Acceptance of the WTO regime by most of the countries has since led to gradual abolition of quantitative restrictions and reduction in duties and removal of restrictions on inter country trade. As a result, the relevance of the State in providing resources for various commercial activities and protecting the interests of consumers has been considerably reduced.