ROLE OF STATE IN HUMAN DEVELOPMENT IN CONTEXT OF MARKET

FAILURES IN THE WEST

By Karthik Suresh,

Roll No. 2010-33,

1st Semester, 1st Year

Submitted to –

Prof. H.Vageesh,

Faculty of Political Science, NALSAR University

TABLE OF CONTENTS

I. Introduction--------------------------------------------------------------------------------------1
II. Market as a provider-------------------------------------------------------------------------2
III. The State as a provider-------------------------------------------------------------------------3
IV. Case Study – The USA before and after the market crisis---------------------------------4
V. Inference---------------------------------------------------------------------------------------5
VI. Bibliography----------------------------------------------------------------------------------6
 I. INTRODUCTION

We have had this debate about, whether the State or the Market shall be the main provider
of Human Development Services like healthcare, education, social security etc. Some
eminent intellectuals are in favour of the State not playing any role at all, whilst some are
preaching the negation of the market forces from the scenario. Each side has, over decades,
built up its own arguments against each other. We have the free-market economists, who are
all in for the market to take control over the Human Development Services mechanism,
believing the State to be inefficient, corrupt, and insensitive. The Marxists and Communists,
on the other hand, assert that the Market is competition-driven, unaccountable, and
insensitive to the needs of the poor. There are also arguments about how these services
should be implemented – should they be free of charge, or should they be paid for.

My Project on the aforementioned topic aims to project, in an unbiased manner, the various
situations the State and the Market have seen when they have provided services to the people.
I would point out the different statements made out by each group of thinkers, ranging from
Bentham and Marx to Krugman and Amartya Sen.

A section has been dedicated to the Case Studies I have made – that on USA, a free-market
economy, where the market is the main Provider of services for human welfare and
development. We are all familiar with the market Failures that took place in 2009, with
several banks and corporations collapsing leading to the loss of thousands of jobs. My point
shall be to depict the problems which the USA now faces with its existing system, and how
the US, led by President Obama, is trying to spruce up their Human Development Service
Systems. I shall illustrate on their merits and shortcomings. I have made detailed explanations
of each of the illustrations made.

Through this project I wish to convey to the reader, the various examples of different
systems each country has adopted to suit its needs – whether the State should entrust these
essential provisions with the forces of the Market, or should it do the job itself. That is the
focal point of this debate.
 II. MARKET AS A PROVIDER

Historically, the State was not the provider of Education, healthcare and other human
welfare services. The State would do so for the Army etc. but not for the general public at
large. Hence it was left to the private practitioners and doctors, teachers etc. to fill in the void.
Chanakya, in his treatise Arthashastra, states that Public Health is not the duty of the state. At
least in India, the kings, although were concerned for the general health and safety of his
subjects, but would not involve himself with that. So did the European kings and Lords.
Ancient Indian philosophers like Chanakya and others believed in passing of knowledge from
Guru to disciple, from father to son, from master to apprentice etc. The system of Gurukul,
though prevalent, was not meant for the General Public, but for the privileged that could pay
the requisite amount for their ward’s education. The systems of Human Welfare were very
much unregulated and disorganized. This lead to rampant illiteracy, poor health and poor life
expectancy among people. Even among the socially and culturally advanced Greeks, the
system of State-sponsored healthcare and education did not exist. Free-lance doctors,
teachers, educators etc., although they had the patronage of the King, but that was more like a
token or a privy. They were not officially recognized or sanctioned.

This system is prevalent in the United States of America, among a few other nations like
Puerto Rico etc. The systems of human development in these countries is not regulated by the
State, they are managed by private entities. The State, however, frames legislations and
statutes regulating, and setting guidelines and minimum standards for the same. In the USA,
the various Departments formulate guidelines and regulations, and also the Senate enacts
legislations after a process of discussions. Otherwise, the Private Sector is relatively free to
its bidding. The private sector provides services of healthcare and education to the masses, in
turn for profits. These Private Entities may have little or no social responsibility.

In the USA, the healthcare and education systems follow a grading/ accreditation pattern.
The State is present only as a regulatory body to ward off any lacunae.

Therefore, the State functions as a regulatory mechanism, in case of a market-driven

Human Development Services system.
III. THE STATE AS A PROVIDER

The State is the most preferred provider in this case, with only the US and a few other
countries going in for alternate systems. It is also by far more successful in certain
countries, than others; however this has much to do with the efficiency of the State as a
whole.

The State usually provides services for human development through various ministries
and agencies, even as mentioned in the US earlier; the State also carries out regulatory
functions for the market. The State provides educational and healthcare facilities to the
public, with the aim of inclusion for all, and it subsidizes such schemes funded through
taxes. Many nations spend 2-5% of their GDP on healthcare and education.

In the 18th Century onwards, philosophers started eliciting the theory that the state
should provide human development services to the people. This was further strengthened
by the belief that the state is responsible for the welfare of his citizens. The Marxist
ideology stated this as a fundamental, for a self-body to do. This idea became popular,
and by the 1900’s many nations had started providing basic healthcare and education
facilities for the people. The idea of a Welfare State has only cemented this concept.

Prominent nations who have adopted this model are Sweden, India, Great Britain, and
many other nations. Britain has made progress with its National Health Service, and
Swedish system of healthcare is well-renowned as one of the best in the World. India, has
also adopted this system, although it is now being much criticised due to its inherent
flaws of inefficiency and lackadaisical attitude of the health and education workers, a
problem that has plagued our system for decades.
V. CASE STUDY – THE USA BEFORE AND AFTER THE 2008-09 MARKET
CRASH

On 15th September 2008, one of the largest banks in the USA, one of the ‘pillars’ of Wall
Street, Lehman Brothers, declared bankruptcy. This led to millions of Americans losing their
savings directly or indirectly and many losing their jobs. Many were laid off, and
unemployment levels reached 10.6% by January 2010, the highest in 20 years. It was one of
the worst economic and financial disasters in the last 30 years, to occur.

At this juncture, the election for the US President took place, and Barrack Obama was
sworn in as the 44th President of the United States. He promised to end the financial morass
caused, by passing a series of legislations to achieve this. The various legislations he would
enact would be, the American Recovery and Reinvestment Act of 2009, commonly referred
to as the Act of Stimulus, the Dodd-Frank Wall Street reform and Consumer Protection act,
2010, which would bring in greater regulation of the stock markets and other protectionist
measures. Gradually it became clearer that the new President wanted to bring in reformist and
protectionist measures to boost up his country’s economy. Subsequently, he wanted the State
to provide welfare facilities to help the people access cheaper healthcare, at better rates than
the prevailing market prices. The millions of people who were facing financial difficulties
would be benefitted by these policies. The Obama administration, in this regard, enacted the
Healthcare and education reconciliation Act of 2010, and the Patient Protection and
Affordable Healthcare Act. Also, the Student Aid and Fiscal Responsibility Act came into
being.

We have now seen the shift taking place slowly in the US. The United States, as we know,
is a state that leaves healthcare and education provisions to the tune of the market. Due to an
economic crisis, this has reversed, and we now see the State providing such services, or
rather, making an attempt to drive away the market due to its unpredictability. Also NGO’s
such as Medicaid are being encouraged to provide Human development services like the
aforementioned.

The market is now slowly beginning to lose drift due to this very fact. Due to its inability
to provide services to the economically weaker sections of the society, it has become
unpopular, and the remaining few states which do not provide human welfare services, are
showing indications of starting to provide them.
VI. INFERENCE

We have observed, by now, both sides of the same coin, and have understood the
intricacies involved. The market-driven human welfare system has been understood to have a
good record, of a high quality of service, and also competence. It can sustain well in a high-
income economy, where people have the necessary purchasing power to enjoy the services
that the private entities have to offer. The market-oriented systems also have the advantage of
relative freedom from the government. It also does not suffer from the inefficiency and the
lackadaisical attitude which state-sponsored systems often suffer from.

The State-run mechanism has the advantages of inclusion for all, and unlimited capital. It
also has the reach to consumers, something which the market mechanism does not. The State
has the political backing, the initiative and the equality which may not be found in the
market. The State-run mechanisms, although with their drawbacks, are however the system of
choice among countries all over.

Having understood this, it is now for us to decide whether the State or the Market is a
better option to be considered. In my opinion, after considerable research, I have come to the
conclusion that the State, if it improves on its inefficiency, could be the ideal service provider
for the purpose in question.
VII. BIBLIOGRAPHY

Books Referred -

Substance of Politics, Appa Dorai

Political Thought, R Pandey

Billions of Entrepreneurs - How India and China are reshaping their futures and yours -
Tarun Khanna

Arthashastra - Kautilya, edited by M.B Chande

Ethics and Statistics - Prof. Dr. Józef Oleński

US Book of Statutes, 2009, 2010.

Websites Referred -

 www.jstor.org

 www.books.google.com

 www.tc.columbia.edu

 www.heinonline.com

 www.gigapedia.com

 www.marketobservation.com

Articles Referred

1. ‘Market failure and governmental failure in skills investment’, David Finegold, as

appeared in the book ‘Acquiring skills: market failures, their symptoms and policy
responses’, by Booth et al.
2. ‘Can NGOs Provide Alternative Development in a Market-Based System of Global
Economics?’ by Lynn Ilon, State University of New York.
3. ‘From State To Market: - A Survey Of Empirical Studies On Privatization’ by
William L. Megginson and Jeffry M. Netter as appeared in Journal Of Economic
Literature, June 2001
4. Annelies Ellingsaeter, ‘Dual Breadwinners between state and Market’.
5. Vladimir Illyich Lenin, ‘A note on the question of market theory’