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  • Created by: ccupani
  • Created on: 11-09-15 16:24

Intervention and the market

Debate about the implications for policy for economic development elsewhere than Asia.

liberals – all decisions about capital allocation or lending should be left to the market. Interference by govt through import restrictions, foreign investment control, pricing and tariffs produce and allocation of resources less favourable than if those decisions were left to the market.

Other view – market produces unequal development. Rest of world is a source of cheap labour and materials. Intervention is the only way to resist these results of the market force.

Governments can beat the market and help create economies which are richer and grow faster than would be the case if it was left alone – Japan and Korea showed growth due to economic planning , credits, etc.

Economic collapse proved subtenant to both scenarios – 1) credit crisis in Korea and Japan were a result of overprotection of lenders by govt. When govt was unable to honor their loans banks failed and companies went bankrupt. 2) growth for 30 years was due to guiding by govt and ministries of industries. Crisis is due to too much govt and too much regulation and overexposure of the market. Risks became apparent and they panicked (dropping stocks/calling in loans, etc). Economies were left to suffer currency devaluations and the market collapsed. Allocations were orderly (overseen by agencies) and replaced by wild swings in prices and movements of cash.

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