Publication: The role of the state in contemporary market economies


Publication: The role of the state in contemporary market economies

Republikon Intézet

From a liberal perspective, the approach to the state’s role in market economy has always been defined by the principle of ‘the less is more’. The market should be regulated by demand and supply, and free competition should control the prices to everybody’s benefit. In an ideal world the role of the state is limited to the provision of the rules of free competition, and governments abstain from interfering with the market. The world, however, is never ideal, and it has been even less so over the last couple of years. Although crises of various natures had appeared from time to time in different states and continents throughout modern history, in our globalised economy and deeply interlinked societies the crises of the recent times, such as the COVID-19 pandemic, the emergence of armed conflicts (such as Russia’s invasion of Ukraine, or the Israeli-Hamas conflict), or fuel price shocks created unprecedented circumstances, calling for new answers.

As successive crises shook the markets around the world, more and more governments and international organisations felt the need to increase their role in the economy. Lending a helping hand to those hit the hardest by most of the time unforeseen depressions, whether they are individuals in debt, or entire sectors drifting toward bankruptcy due to lockdowns, was always the reasoning behind interventionalist policies. Yet, it suddenly became visible that certain political actors took advantage of the crises and of the metaphorical ‘fog of war’ they brought along, and, under the banner of helping those in need, introduced measures supporting their own political and/or economic goals. Furthermore, either due to the urgency of taking steps, or simply because of policymakers’ recklessness and a lack of proper consideration, several policies came into effect all around the world that weren’t effective in mitigating the effects of crises or had serious unexpected side effects.
Although because of the challenges set by the recent years the liberal approach to the state’s role in the economy is transforming, too, we cannot forget about the concerns related to state interference that have been characterising it from the beginning. In the future we will need solutions that enable the state’s effective intervention but tie its hands strong enough to prevent it from upsetting the market’s balance in the long run, and to make sure that public funds really end up at those who need them. For that end, it is necessary to look back and around, and draw the consequences from the era of ‘permacrisis’.

In September 2023, Republikon Institute held an international conference in Budapest on the state’s role during crises with the participation of excellent Hungarian and international economists and analysts. Although initially, the conference intended to focus on state interventions in the market economy, during the panel discussions it quickly turned out that the scope of the discourse had to be broadened: state interventions during crises cannot be examined and analysed in a “vacuum”, without getting a deeper understanding of national level systems and mechanisms, political structures, and their relations to the market. As a result, we asked our conference’s distinguished speakers who also honoured us by contributing to the present publication to elaborate not only on measures of state intervention taken in response to crises in the past years, but also on the underlying structures of the connection of state and market, which largely define a country’s resilience to economic shocks.

The case studies included in this publication focus on Austria, Hungary, and Portugal – three countries of completely different economic and political backgrounds. The diversity of the cases sheds a light – at least partly – on the variety of economic and political structures within the European Union, and on the entirely different issues these structures may entail, from rent-seeking to the state’s overpresence in the market, or to the implementation of counter-productive populist measures. While the studies are insightful and enlightening in themselves, we believe that as a collection, they raise awareness of the multi-layered and complex nature of the challenges EU member states and, consequently, the EU itself must face in connection with understanding and interpreting the state’s role in the market, and they help us draw conclusions for the future that could contribute to the improvement of the resilience of national economies, and to the protection of the free European market.

You can read the publication here