STIGLITZ’S THEORY OF DEVELOPMENT AND THE ROLE OF THE STATE IN THE DEVELOPMENT PROCESSES

Abstract

The political framework of the "Washington Consensus", created between the International Monetary Fund, the World Bank and the U.S. Treasury, emphasized minimizing the role of government, deregulation, liberalization and privatization. Its policy has, according to some of the renowned economic theorists such as the Nobel Prize winner Joseph Stiglitz, played an important role in the failure of transition to a market economy in Russia and other countries in transition and considerably contributed to the recession and stagnation in Latin America. The aim of this paper was to present an alternative concept of development and modern role of the state, to analyze some of the successful examples of the development in the world and explore the role of public policy in the development of these countries. The paper presents Stiglitz’s critique of the Washington consensus development strategy and Stiglitz’s alternative theory of development and the role of the modern state in the development process. Then it analyzes the successful example of the East Asia development and the role of the public policies in the rapid growth of these countries. At the end a case study of a public institution for export promotion was presented. The results showed that the economic success of East Asia was built on effective state interventions which have been implemented in an unusually disciplined manner. The quality of public administration and the mechanisms of technocrat’s isolation from political influence had a major role for success of these interventions.