1. "Both the Market Friendly Approach and the Government Planning System Have Been Debatable Issues."

Topics: Planned economy, Economic system, Mixed economy Pages: 21 (6769 words) Published: April 23, 2012

While most economists would agree that the government can play a significant role in promoting economic development, there are fewer assents regarding the specific nature of the government Intervention. Opinions on this issue tend to be polarized in two highly contrasting approaches but well-established views: the government planning and the laissez-faire views. The economists who support government planning view argues that an active government involvement in mobilizing and allocating financial resources, including through government ownership of financial institutions, is needed to broaden access to credit, as private markets fail to expand access .Government planning system was one of the approaches that took place in the world economies in the 60’s where its principles are undertaken from the Keynesian economics. Where it lead to the success of the economies of many countries however it also pushed back thrones. Planned economies exist in very few countries such as Cuba, Libya, North Korea, Saudi Arabia, Belarus, and Myanmar. In the contrary, the economists who support laissez-faire view argues that governments can do more harm than good by intervening directly in the market system and argues that government efforts should instead focus on improving the enabling environment .this approach states that government generally should not interfere with decisions made in an open competitive market. These decisions include policies such as setting prices and wages. According to laissez-faire, workers are most productive and a nation’s economy functions most efficiently when people can pursue their own economic interest freely. The economy of the United States is close to being a laissez-faire system. Due to the contradiction and the differences in the points of view, a third view appeared which is emerging in the middle ground, favoring direct government interventions in non-traditional ways. This view, which we denominate market friendly approach, seems to be behind some recent experiences of public sector intervention. In a sense, this third view is closer to the laissez-faire view, to the extent that it recognizes a limited role for the government in financial markets and acknowledges that institutional efficiency is the economy’s first best. However, it contends that there might be room for well-designed, restricted government interventions to address specific market failures and help smooth the transition towards a developed economical system or even speed it up. The main message of market friendly approach is that there is a role for the visible hand of the government in promoting access in the short run, while the fruits of on-going institutional reform are still unripe. However, the government must be highly selective in its interventions, always trying to ensure that they promote the development of deep domestic markets, rather than replace them. Careful analyses to identify market failures and their causes should precede any intervention. And even if a market failure is identified, government intervention can only be justified if it can solve the failure in a cost-effective manner. There must also be mechanisms in place to prevent political capture that may undermine the temporary nature of the interventions or their compatibility with the long-run objective of institutional reform and economic market development. We illustrate this new view with several recent initiatives in Latin America and discuss some open policy questions about the role of the public and private sectors in light of these experiences

It has been a controversial issue which is better free market or government planning system or the market friendly approach? Which one is beneficial and applicable in Egypt case?

In this paper, we will discuss each system and illustrate the pros and cons of each, which one is recommended to be applied in the Egyptian case so it can recover. Also we will illustrate some experiences of some...
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