The role of the state in a developed economic society is to regulate and control all activities of the state in order to ensure the systematic development of the country in a fair manner and the wealth fare of their citizens.

As a whole all the modern and contemporary economic theories that develop the problem of the state’s economic role in the circumstances of market economy are disposed between two conceptions. On one hand, the new-Keynesianism – defends the expansion of the state intervention in the economy and on the other hand the neo-classical models that call on gradually reduction of the state control. All other theories essentially are certain synthesis of the mentioned above extreme positions. The beginning of these theories proceeds from the criticism of the two contrary approaches to the dimensions, boundaries and the methods for state regulation of the economy.

In the advanced countries with mixed economy the state role in the economy’s functions is not the same. It differs in dimensions, structures and the state’s methods for influence of the economy as well as in society’s willingness to accept and support such state intervention in the economic life. These differences are conditioned by many factors of objective material nature and also by the influence of the traditions and certain concepts or mentality of the society.

Notwithstanding the specific character of the economic, cultural, national and historical development of the various countries where the mixed economy operates well to some extent and notwithstanding the economic theories that these countries prefer, the economic role of the countries might be presented in the light of the following most significant functions:

•Elaboration of economic legislation, securing the legal fundamentals and social climate, that contribute to effective operating of the market economy;

• Support of the competition and securing the function of the market mechanism;

• Redistribution of the incomes and the material wealth that is orientated to solving the social problems of the country;

• Regulating the distribution of the resources for modification the structure of the national product/domestic product;

• Stabilizing the economy under the conditions of economic juncture variation and also stimulating of the economic growth;

• Enterprising activities of the state.

In addition, the state should ensure the proper education and health care of their citizens.

All these functions on one hand are orientated to support and alleviate the market economy function and on the other hand to regulate and rectify the market system activity including neutralizing of its negative sides as well. For the experience of all the countries with mixed economy those tendencies are not only peculiar but also the fact that the state has economic role and serves its purpose as being part of the market system mechanism itself using its regulative tools and leaning on its regularities without ignoring them.

The listed state economic functions are proof that its economic role is not reduced only to manage the state enterprise in the economy, but also to enterprising activities within certain group of companies that the state owns. The state economic role involves economy control activities as a whole and also all its sectors as a united system.

Therefore, the restitution and the privatization as a rule that means quantitative reduction of the economy state enterprise might be accompanied with decrease of the regulating state role as well as with consolidation and expansion of the economic function fulfilled by the state.

Regarding the enterprising functions executed by the state it has to be considered that in the advanced countries these functions are not decisive when related to economy state control. The restitution, especially in the shape of privatization, leads to reduction of this function, even if it leads to shortening of the economy state enterprise whereas the state serves as a contractor. The experience of all the countries with mixed market economy serves as a proof for insufficient effectiveness of this economic sector. Its existence in most cases is caused by non-commercial motives but not by motives for profit and economic effectiveness.

The state enterprise covers certain niche in the economy which is not attractive to the private enterprise that is guided by motives of commercial benefit only. The state strives for turning the market economy into ecologically safe one, guaranteeing the social and economic rights of the citizens, organizing the development of the science and technique progress, improving the structure and regional disproportions, ensuring the effective development of the international economic affairs. The state performs all of these activities thanks to the presence of the special state enterprise in the mixed economy as a combination of structures for its direct participation in the processes of manufacturing, distribution and exchange. A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market.

State regulation in any developed market should focus solely upon correcting those actions which cause negative externalities and losses to society. Problems arise from a delicate balancing act between what is better for the greater good and those who act as principle agents for their own good.

The role of the state in a developed economic society is to regulate and control all activities of the state in order to ensure the systematic development of the country in a fair manner and the wealth fare of their citizens.

As a whole all the modern and contemporary economic theories that develop the problem of the state’s economic role in the circumstances of market economy are disposed between two conceptions. On one hand, the new-Keynesianism – defends the expansion of the state intervention in the economy and on the other hand the neo-classical models that call on gradually reduction of the state control. All other theories essentially are certain synthesis of the mentioned above extreme positions. The beginning of these theories proceeds from the criticism of the two contrary approaches to the dimensions, boundaries and the methods for state regulation of the economy.

In the advanced countries with mixed economy the state role in the economy’s functions is not the same. It differs in dimensions, structures and the state’s methods for influence of the economy as well as in society’s willingness to accept and support such state intervention in the economic life. These differences are conditioned by many factors of objective material nature and also by the influence of the traditions and certain concepts or mentality of the society.

Notwithstanding the specific character of the economic, cultural, national and historical development of the various countries where the mixed economy operates well to some extent and notwithstanding the economic theories that these countries prefer, the economic role of the countries might be presented in the light of the following most significant functions:

•Elaboration of economic legislation, securing the legal fundamentals and social climate, that contribute to effective operating of the market economy;

• Support of the competition and securing the function of the market mechanism;

• Redistribution of the incomes and the material wealth that is orientated to solving the social problems of the country;

• Regulating the distribution of the resources for modification the structure of the national product/domestic product;

• Stabilizing the economy under the conditions of economic juncture variation and also stimulating of the economic growth;

• Enterprising activities of the state.

In addition, the state should ensure the proper education and health care of their citizens.

All these functions on one hand are orientated to support and alleviate the market economy function and on the other hand to regulate and rectify the market system activity including neutralizing of its negative sides as well. For the experience of all the countries with mixed economy those tendencies are not only peculiar but also the fact that the state has economic role and serves its purpose as being part of the market system mechanism itself using its regulative tools and leaning on its regularities without ignoring them.

The listed state economic functions are proof that its economic role is not reduced only to manage the state enterprise in the economy, but also to enterprising activities within certain group of companies that the state owns. The state economic role involves economy control activities as a whole and also all its sectors as a united system.

Therefore, the restitution and the privatization as a rule that means quantitative reduction of the economy state enterprise might be accompanied with decrease of the regulating state role as well as with consolidation and expansion of the economic function fulfilled by the state.

Regarding the enterprising functions executed by the state it has to be considered that in the advanced countries these functions are not decisive when related to economy state control. The restitution, especially in the shape of privatization, leads to reduction of this function, even if it leads to shortening of the economy state enterprise whereas the state serves as a contractor. The experience of all the countries with mixed market economy serves as a proof for insufficient effectiveness of this economic sector. Its existence in most cases is caused by non-commercial motives but not by motives for profit and economic effectiveness.

The state enterprise covers certain niche in the economy which is not attractive to the private enterprise that is guided by motives of commercial benefit only. The state strives for turning the market economy into ecologically safe one, guaranteeing the social and economic rights of the citizens, organizing the development of the science and technique progress, improving the structure and regional disproportions, ensuring the effective development of the international economic affairs. The state performs all of these activities thanks to the presence of the special state enterprise in the mixed economy as a combination of structures for its direct participation in the processes of manufacturing, distribution and exchange. A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market.

Hello, Ryan Daly!

This balance - the result of political fight supporters of priority development of the national economy and those for whom is more important development of economy of extraterritorial profit?

Hello, Jorge Morales Pedraza!

Thank you very much for the detailed answer.

Hello Vladimir llyin!

I am please to know that my comments have been useful. This is my purpose.

Hello Vladimir!

Yes, that is precisely where the majority of distortions within the state controls occur (from my observance, both in the US and globally). At least within the USA, the political system is designed to benefit those who are elected by a predetermined number count based upon divided geographical districts. As one of our former presidential elections showed, popular vote by gaining the majority of voters didn't mean the person was elected. I myself am not a political scientist, but do follow closely as an economist must do in order to analyze proper economic decisions.

Back to the question, I tried to summarize in as short as I could. Economics of optimization principles indicate that individuals, organizations, and business firms seek to maximize their own well being in any economy being it capitalism, socialism, import substitution industrialization, etc. If state regulation within certain market scenarios didn't exist, i.e. monopoly and cartel markets, then excessive profits can occur that cause losses to society as a whole.

However, given an entity can function freely, economics of capitalism dictate that firms will choose to produce where costs are the lowest. The side effect of this is not just lower costs and higher profits, but also lower prices to the consumer (if the market is left alone to self regulate).

When instances occur for these agents to maximize their wellbeing cause negative externalities to occur is where a state control policy should step in. The benefits of regulation can easily outweigh the costs associated with policy implementation and society's loss from the instance without regulation.

Now, when you discuss agents seeking extraterritorial profits through the use of globalization, historic data has thus far indicated it is possible to cause global society to be better off. A quick off-the-top-of-my-head example is the use of NAFTA to trade with Mexico. While in the short term jobs were lost domestically, consumers benefited greatly from a larger diverse product offering at cheaper prices. Same effect has occurred from US-China relations.

The side-effect of capitalism, domestic or globally, is the potential to lose competitive advantage in areas once thrived upon. Argentina's ISI policies come to mind with wine production. However, a benefit of operating with free-market activities is that it can create periods of innovation and skill/education in the long run. Shifts in professional qualifications occur during these periods that cause problems and benefits. If things operate in an efficient manner, the overall change in the end will be greater than before.

However as of late with these operations occurring for a few decades, labor costs have been rising within both of these external countries. Combined with rising energy costs globally, the US has now become under pressure to shift production back domestically. Incomes in China have risen to a point where when combined with transportation costs from overseas and risks associated with ocean transport, it is now cheaper to produce domestically.

Both of these historic instances can be shown that economic equilibrium will find itself even when agents seek to maximize profits through "exploitation" of labor and land resources. State regulation should exist solely when it will benefit society as a whole, not when it benefits small interest groups or individuals.

The definition of society is what should be questioned when determine who benefits. Politicians may define it as their constituents who've elected them into office. Lobbyists will argue it is in their best interest to maximize their firms wellbeing. Lawyers the same, being their defendant is guilty or innocent. As an economist, one must look at wellbeing as a whole given the situation and all external and internal effects of the activities involved.

Hello Ryan!

What do you think about basic negative results of economy of extraterritorial benefit.

Much of the population of developed countries lose professional qualifications and switch to activities not related to the production of vital commodities (vc). This results in a dangerously high rate of growth in the number of capable people who do not wish to engage in the production of vc (vc-production).

Not only financial, but also many state leaders, are accustomed to solving their economic problems by reducing the income of producers of real commodities and have a vested interest in the existence of pm.

Such leaders are supported by the population, many of whom have no wish to participate in vc-production and have propensities to consume in excess of income, and live “of the interest" earned in games on the stock and currency markets.

Most of the population of underdeveloped countries flows into developed countries, exacerbating the ethnic, religious and other problems.

Hello Vladimir!

That's a good point. Depending on ones view and priority, actions taken to regulate must be thoroughly thought out. I keep thinking of the ISI policies banning imports in order to spur domestic production. While it worked in the short run it failed in the long run.

In my opinion, every form of economic activity and policy follows a cycle. There is no long term method that is suburb to another. In one century, social reform may be the best way to solve a growing resource inequality problem, whereas another period can benefit from extreme capitalism without intervention.

However, there will always be a point of equilibrium in any scenario. Be it misplaced workers, migration, climate chaos, or control vs freeness. There will always be a loss and a gain. It all depends on an agenda of how to promote society as a whole or ones personal well being.

Lastly, while the migration from underdeveloped nations has been occurring for awhile, in time I believe it can eventually flow in reverse once resources become scarce again within those developed nations.

I find this topic quite interesting and have been studying it in my spare time for awhile. I continue to look for other views and thoughts to elighten upon.

Hello Ryan!

Thanks for the answer.

In Moscow, it's late night. If you do not mind, we could continue the discussion in the afternoon.

Likewise. I look forward to continued discussions with you.

Hello Ryan!

An important task of the state regulation of economic development

Economic activity — this is not only the production and sale of commodities, but also the primary means of development of people, tribes and nations.

If acceptable conditions are created (roads, electricity, credit state support, etc.) then many people who are fond of land will cultivate additional hectares and construct farms.

Considering modern means of transport and adequate transport communications that connect landed properties with cities and with each other, people will be able to combine urban and agricultural activities.

One of the primary objectives of country’s potential development is to develop infrastructure for those who produce real commodities, those who are fond of land, a combination of agricultural and urban activities.

The current economic model of extraterritorial profit is not suitable to realize the development of infrastructure in landed property: the producers of real commodities who are at the same time owners of the property are not in the current labour force easy to move or easy to manage.

Good morning Vladimir!

I agree completely here. These are excellent points that revolve around a primary issue behind state control: externalities.

For example: the United States went through a period of rapid transport infrastructure growth during the 1900's. Without state intervention and public funding, those roads likely wouldn't have been built or maintained. The externality here is a reduction in productivity due to the time required to travel across the country to deliver any goods or services.

Same scenario different industry: communications. However, this time the US did benefit from private ownership (although was heavily regulated due to monopoly profits) by giving incentive to those who did invest in expanding communication infrastructure. We are currently experiencing this same situation with Broadband Internet infrastructure and making sure all citizens have equal access to the same available knowledge online. The debate is whether the state should intervene and invest within a rapid expansion of ultra-fast Internet speeds that has the capacity to handle simultaneous access.

Now these examples come from a country that has already gone past the hurdles of some economic developments that other developing countries have yet to go through. However there are economic growth theories that predict and support the recent rapid growths of developing countries, which involve those technologies that were developed within the now developed countries are easily accessible to those developing countries. There is a specific term for this scenario, but I can't think of it at the moment. It is similar to both Unified Growth and Schumpetarian Growth theories.

A large issue does involve the development of infrastructure to support further growth. State control over ensuring this infrastructure is in place satisfies externality issues that the free-market doesn't solve.

Extraterritorial profit certainly creates issues that are not easily solved within the short-run economy. Unemployment and decay becomes a side-effect that hinders growth, but in exchange the newly created competition in the market certainly creates pressure to offer lower prices for commodities. It thus also creates incentive to re-educate and seek new means to sustain the prior living standard levels, even if it causes population migration and changes within job titles.

An example that the US easily displays is the rapid growth of corporate farming. For many decades the US thrived on self-sustained farming. It wasn't uncommon for families to come from a farming background. The rise of single entities owning larger plots of farm land created a beneficial side effect for society as a whole: Economies of Scale. The massive farms now produce commodities at a lower cost and lower price to the population and world. However the negative side effect for society was a large number of the population no longer being farming families, and needed to seek new means to survive and have an income. In the short run this was a large issue, but now has become common place with a re-educated workforce.

We can't easily solve short run labour issues, as the US shows it has been in its longest labour recession in decades (yes it is still relatively high compared to the rest of the world). But over time new incentives will surface to produce in new industries to ensure economic output and growth continues. The level of state intervention needs to continue to adjust, otherwise economic growth can simply vanish or recede. Protection needs to be adjustable, or other issues can surface (see issues behind the US sugar producers industry: http://www.aei-ideas.org/2013/02/protectionist-sugar-policy-cost-americans-3-billion-in-2012/. Even though the policies behind this state protection greatly benefited the industry originally, it has become a negative externality to society as a whole.

Good morning Ryan!

In your answer you repeatedly mention "economic growth".

The pseudo axiom of "economic growth"

Growth of total cost of goods sold - is questionable indicator of economic development.

And yet modern corporations and nations fear slowdown in "economic growth".

The statement that an economy should grow is considered an axiom. Such economic behaviour presupposes persistent growth of consumption of resources and unrepayable “borrowing” from nature.

The principle of "sustainable economic growth" resembles the principle of a whirligig (which is as badly affected by reduced rotation speed, as is the modern economy by slowdown).

Global consequences of such striving are most clearly manifested in the growing demand for water, energy supply, raw materials and in harmful effects on the habitat and the genome pool.

State regulation should contribute to the production of essential goods and selectively inhibit the production of other goods.

Hello Vladimir!

I probably should have greeted "good afternoon" to you!

State regulation most certainly should contribute by aiding those in need of production of essential goods and inhibit those that hinder. Depending on the economy, those resources perhaps are either functioning well under an open and free market, or require state intervention to ensure constant and consistent resource supplies. It all comes back to the question of who will benefit the greatest? Will a single person, entity, group, region, or nation benefit the most? If some form of protection is required in order to assist short term economy, then it should be done as long as the protection provided is greater than if it wasn't. But it should also be analyzed with the long term in mind too. Perhaps the protection should be enforced immediately while the scenario is analyzed to determine the best route to continue on. Example of US sugar producers comes to mind again. They required protection up front, but certainly don't require it now as their domestic prices and profits are much higher than the global prices and profits are. While this certainly benefits a portion of the economic activity, it is highly segregated to the few sugar producers that exist within the US which causes US prices of sugar to be excessive to all consumers and producers.

I myself am dearly concerned with the rapid development of global resources and the pace they are being depleted. World population has grown tremendously without an increase in food and safe water supply in many regions. I, myself, foresee a looming problem of fossil fuel dependence creating excessive economic strain in the near future.

I was taught two specific gloomy details regarding economic activity to keep in mind when making critical decisions: 1.) in the long run, only food, water, and energy matter; 2.) in the long run, we are all dead....

We must focus on short term goals and seek to benefit for not just the individual, but for the greater good too. But that is easy to say when the individual is suffering; easy to say when the individual is prosperous and gaining all economic profits. Personally, I do foresee a very near shift in economic policies within the US towards socialism to bring equality equilibrium back in order. Trends of growth within the US are to those in the top 1% of incomes, leaving the lower 99% suffering with little to no growth.

Perhaps economic goals should shift towards natural resource protectionism instead of individual, group, region, national protections, etc?

Undoubtedly, the protection of national natural resources is one of the main objectives that each government should do, in order to preserve them to future generation. The level of exploitation of some of these resources, particularly energy sources and water, could create a very difficult situation in the future, if no energy sources for the generation of electricity are found in the next decades, in addition to renewable and the proper technology for massive desalination of sea water, just to mention only two examples. Of course the current economic system in force in the developed world is not helping in a more rational use of all natural resources already available in the world.

Hello Ryan!

Yes, the environment and natural resources must be used carefully.

But this is hardly attainable under modern economic ambitions.

Social stimulation, which should support the state

Nobody would like to see the people around him lived by the principle: "After us - the deluge!"

The choice of lifework by an able-bodied individual depends on his ambitions and social stimulation.

In the last few decades the portion of those who want to become professionals designing new buildings, technologies, machines; exploiting existing facilities and equipment; providing educational and recreational services etc, is persistently decreasing.

The number of capable people consuming commodities but not producing them is growing in both low-income and high-income countries. Their idols are lucky financial speculators, credit sellers and other masters of making money from money.

Hello, Jorge Morales Pedraza!

I am glad that you continue to debate.

With your opinion about the need for state protection of natural resources is unlikely anyone will disagree.

I think Ryan says as most of the population and, in particular, economists: we live here and now, and we should receive maximum, and then "in the long run, we are all dead...."

This is a philosophic issue :)

It seems like Ryan does not see who really started "globalization", and he actually believes in the inhumanity of the Serbs, Iraqis, Libyans (or just their leaders :), and other people whose resources are useful.

Such economists do not care about the loss of domestic manufacture of vital commodities - they also believe that non-educated workforce (I guess, external) will produce them for the great country, and domestic "re-educated" people can only manage already.

Concerning the last Ryan's question: in my opinion, the natural resource protection in our world - hurricanes and earthquakes (again, this is philosophy:) Other protection is almost not probable if we always say about "economic growth" and "lower prices".

Dear Vladimir. Thanks for your comment. I do also hope that the idea of government responsibility in the protection of the country's natural resources is share by others.