Saturday, December 10, 2005

Welfare State : Will be replaced by a New Service State?

Form the economics point of view it is usual to argue about the implications of welfare state. Although its popularity was widespread during the years following the golden age of industrial expansion and economic growth (1950- 1970),its consequences were quite difficult to understand for politicians, intellectuals and business man who take for granted the state support for its business decisions and social problems solution. After 1950,that was the case in most of Latin America countries, and of course also in Chile. In theses countries, this centralized focus for growth, meant an inward looking view of both economic growth and development, the famous ISM (import substitution )models. According to this view, because of unstable private sector, and dependency from the
advanced economies, the state should play an active role in the productive sectors, with markets interventions through heavy regulations, and social expenditures with the subsequent inefficient allocation of resources specially when it went out of the line, because they were not used up to the level of its potential. -
It is known that the productivity of resources depends not only of its uses, but also of its owner. Who care of others ´ property uses?. Public use of resources, may imply a lower productivity than the private use of resources. Corruption, mismanagement of public enterprises, over spending in useless project, are some examples of this statement. The higher the State participation in the economy , it means higher capture of resources(,Daniel Kaufmann), affecting the prospect for growth and poverty reduction
Given that there is scarcity of resources, the only way emerging economies may be more efficient in international markets is with a “lighter weight state”, which means a greater proportion of those scarce resources to be managed by private sectors. There is no way to get the necessary efficiency level and higher productivity ,while the state activity take an important share of scarce resources.
The traditional theory of comparative advantage ,is based on a fixed endowment of capital and labor to concludes that international trade is advantageous. It is a static view of trade. Globalization has made this view somehow outdated. The dynamic of high mobility of factors such as capital, technology, ideas, creativity and so forth, characteristics of global markets, requires a different approach to get the benefit of international trade. Those mobile resources goes where there are cheaper complementary factors such as labor and services. So, the new business scenario, requires competitive business, efficient government, complementary State, and flexible markets to get higher income associated with international trade. Otherwise, those countries which sustain these conditions, will get the main share of the benefits of global trade. For this reasons, important advanced countries ,are working through a process of reform to make adjustment to their welfare state . In Europe , Germany is engaged in an important process of getting a modern approach to what may be considered as a New Service State. This type of State role emphasizes a different relationship between citizens and the state, between the productive sectors and the state ,and between the political power and the state. The Services State is a smaller and a better one, and it replaces the welfare State, because it is related to the new needs of citizens such as local participation, security, markets information, job trainings, environment, and research. Welfare it is not about to wait for someone to help without cost, but to take advantage of all means available today for people to help themselves, paying a reasonable cost. In other words, higher welfare can be obtained with the complement of the State, not exclusively because of the State.-
Chile has gone a long way through it, the whole process is complex, but it is hard to believe in a different alternative, unless we all move the clock of economic history , backward.-

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