The Political Economy of Development Finance

Development, Markets, Competition and Entrepreneurs. Economic development shall improve the efficiency of resource utilization; this requires profound structural change. A policy impeding change obstructs development. After the collapse of the centrally planned economics it has become a commonplace that markets can enforce efficiency and shall induce development. Economic textbooks explain that markets require private property and prices determined by demand and supply. When some former socialist countries started their transformation towards‘market economies’by liberalizing prices and privatizing large public enterprises, the result was a sharp increase of prices and unemployment. Public monopolies with controlled prices were replaced by private monopolies with unregulated prices, and while the public enterprises (whose losses were covered by the state) were vehicles for the (formal) realization of the full employment guarantee, the privatized enterprises as pofit‐oriented ventures are compelled to reduce costsespecially costs of overstaffing. The lesson to be learned (or recalled) from this experience is that it is not the market as such which improves the general welfare of the people, but the competitive market.