1. The balance between markets and intervention
IB Econ Chapter 33

2. Market-led versus interventionist growth strategies
Market led strategies are policies that minimize the role of government and maximize the role of supply and demand
Examples of this
Export-led growth
Growth through FDI
Privatisation of national industries
Deregulation
IMF policies
You may see these written as free market policies, new classical policies or neo-liberal policies
Interventionist strategies involve an active role by government and manipulation of the markets
Import substitution
Protectionist trade policies
Exchange rate intervention
Nationalisation of industries
More regulation
Government involvement in export markets to promote industries and their products

3. Market-led versus interventionist growth strategies
Over the years there have been various trends but the main emphasis has been government planning
This has led to problems
Public sectors growing too large with the growth of corruption and inefficiency
Inefficient national industries
Excessive government spending
Increases in money supply leading to inflation
Many large infrastructure projects saw little success

4. Market-led versus interventionist growth strategies
Since the 1980s the free market has taken a bigger role but also lead to problems
Not enough infrastructure created
Developed countries promote free trade but use protectionism themselves
Short run costs of unemployment
Rise in prices
Fall in provision of public services
This affects the poor more than anyone else
Free market strategies tend to focus on urban areas creating inequality between urban and rural areas
Slums develop on the edge of many major cities
A lack of political stability does not attract FDI
A combination of the two is required

5. What is needed for growth and development?
This is what economists believe is required
Trade Justice – developing countries and developed countries not hampered by protectionist policies
Debt relief – release funds to invest in physical and human capital
Free working of domestic markets when they have achieved a competitive size and have sufficient support in terms of infrastructure, quality of labour force, technological/managerial expertise
Political stability and good governance (reduce corruption)
Effective targeted aid that leads to pro-poor growth