CHINA / National

Gov't 'has key role' in market economy
By Fu Jing (China Daily)
Updated: 2006-03-21 06:22

It would be a mistake if China failed to strengthen the role of the government in co-ordinating economic development and social policies, according to Nobel Prize-winning economist Joseph E. Stiglitz.

The comments by the Columbia University professor of economics come amid intense debate in the country on whether calls for the government to launch social programmes would hamper the market economy.

Nobel Laureate Joseph E. Stiglitz
On the contrary, Stiglitz said in an interview with China Daily, a government that understands and performs its functions is essential for the market economy to continue its progress in a harmonious social environment backed by changes in the rural sector and domestic consumer spending.

"There is a risk of China moving from over-emphasizing the role of government to over-weakening its role," the former chief economist of the World Bank warned. "The risk is due to the naive understanding of the market economy."

Every successful example of the market economy has involved the role of the government, and it is clear that China is seeking a distinct form of the market economy, he said.

There is not one form of the market economy but many. "And governments can play an important role together with Adam Smith's invisible hand," Stiglitz said.

Smith, the 18th century Scottish economist and philosopher, is credited with laying the intellectual framework for the free market; and is famous for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product.

Stiglitz defined the government's role as providing public services such as education, health, pension and other social safety nets and enabling the market to function well.

He said he was glad to note that the Chinese Government has recognized the need for a transition in its role from setting growth targets in the past to building what he called an "institutional infrastructure" for a working market economy. China's 11th Five-Year Plan (2006-10) can be a major step in this transition, he said.
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