State Institutions of Economic GovernanceModels of Economic Governance

1. State Institutions of Economic Governance
Models of Economic Governance
Prof. Dr. Mária Bordas
National University of Public Service
Faculty of Public Governance and
International Studies
2020.
1

2. State and Economy
 Scientific theories about the relationship
between the state and economy:
- Only since the liberalcapitalism – means of
private law – invisible hand
- Monopoly capitalism: public law
- Earlier: state interventions without any
conception, e.g. feudal absolutism
 History of economic governance:
spontaneous operation of economy or state
intervention, but in what extent?
2

3. Economy
in the Ancient States
 Developed production and market-oriented
economy
 State: regulated the private ownership,
contracts and legal disputes by private law
(civil law and commercial law)
 Base of production: animal husbandry,
agricultural production, craft, trade (by sea
and on field to Far East)
 Classes: wealthy land owners –
entrepreneurs -peasants and slaves3

4. Role of State in the
Economy
Developed public administration organizing the
economic activities of the state:
- Huge state buildings
- Canalization, irrigation
- Building roads and dams
- Tax and fiscal administration: tax collection and
management of the assets of the emperor
- Organizing public works
- Ancient states: Egypt, India, China, Persia,
Mesopotamia (since B.C. 4000)

5. Private Law in the
Ancient States
 Law of production and market-oriented
economy: contracts, credits, interest,
possession, ownership, rent, compensation,
debtor-slavery, etc.
 Most developed in the ancient Roman
Empire:
- Basis of the Continental European civil law
- State: (populus Romanus) – community of
Roman citizens – own legal entity – conquered
terrotories by governors 5

6. Lands in the Ancient States
 Land in the tribal clan society: in community
ownership
 In the class society: in the ownership of the
monarch
 Private ownership: te monarch donated
lands to the religious leaders, state officials
and fighters
 Giving lands: the state gave lands to the
poor peasants (Gracchus brothers in Rome)
6

7. Forms of State Intervention
in the Ancient Times
 Ancient Greek Cities:
- Peasants escaped from their lands due
to the wars – ordered to bring them
back and stay there
- Donated land to the fighters with more
favourable conditions
7

8. Forms of State Intervention
in the Ancient Times (2)
 Roman Empire: (most developed)
- Huge bureaucracy and army to protect the emipre
- Public administration: public safety and order, police,
fire department, tax collection, management of the
state assets and treasury, postal services, roads,
public buildings, canalization, water supply, etc.
- Poors in Rome: „circus games and bread”
Problem: high costs for the state budget, but less tax
incme (the aristocrats did not have to pay tax)
8

9. Fail of the Roman Empire
Economic crises since the 3rd century:
- Owner of large lands: exempt from tax
- Peasants (small lands): their taxes
could not finance the growing costs of
the state
- Inflation – loss of state budget
- Small landowners: left their land and
went to the large lands to be protected
- Cities: population left
9

10. State Intervention in the
Roman Empire
 Price regulation: goods and wages
 Instead of taxes: to give products
 Obligatory succession of jobs: agriculture, craft,
trade
 Harsh punishments for the violation of laws
Result:
- Could not hinder economic decline
- Development of self-sufficiant feudal large estates
Reason: the production mode did not developed
10

11. Economic Order of the
Feudalism
No centralized state: power of monarch is
based on his lands, monoplies (regalies, e.g.
mining, trade, customs, using roads and
bridges) and fief hierchy
Self-sufficient large estates:
- Independent: landowner has jurisdiction,
legislation, administration
- Serfs: bound to the land, paid taxes
(landlord, church), provided work
Result: low economic efficiency 11

12. State Intervention in the Economy
during the Feudalism
 Epidemics: drastic decreasing of
population
- Lack of balance: between supply and
demand
- Increasing prices, decreasing wages
- Control of wages: workers-peasant
riots
- Crafts: price-wage regulations, cartels
12

13. Development of the
Feudal Economy
Cities: market – independency: iurisdiction,
administration, customs, right to have market
Crafts and traders: Guild with monopoly rights:
entering, quality control, licence, price
regulation
Overseas trade: exotic goods, new plants
Innovations: in textile industry, steam engines,
manufactures
Financial institutions: commercial banks
(Medici, Fugger), stock exchange (In Holland)13

14. Economic Policy in the
Feudal Absolutist States
 The monarch decides based on their counsellors
 No scientific conceptions: (but serves public interest)
- Mercantilism: source of economy: the foreign trade -
increase of export, decrease import – wealthier
treasury – high customs (protectionist policy)
- Physiocracy: source of economy: agriculture
- Cameralism: independency of the national economy,
selfufficiency, protection of domestic industry,
customs, development of the rural areas
14

15. Industrial Revolution
 Civil Wars: eliminated the feudal laws, e.g.
limitations of owning lands, crafts’ monopoly rights,
serfs – assuers the capitalist institutions: market,
free enterpereneurship
 New industries, modern business enterprises, new
innovations: electricity, railway, telegraph,
 Agriciulture: modern large estates (free serfs) by
entrepreneurs or aristacrats – Prussian and British
model
 Banking system: central bank (to stabilize financial
market, to issue banknotes) – commercial banks
(give loans) 15

16. 16
Economic Administration of
Liberalcapitalism
 Economic philosophy: „Invisible hands” or „Laissez faire”
(French for “leave alone”)
 Constitutional principles of the economic order: right to
property, contract, undertaking and economic equality,
proportional public burdens, laws by the parliament
 Role of the state:
- Civil law: regulates the „rules of the games”
- State subsidies: protective tariff, price
regulation, donation
- Regulations: quality, safety and health
- Public services: infrastructure services,
railway, post, telegraph
- Favouritism: on the national ideology
- Social services: social insurance, free elementary
education
Adam Smith „The Father of Economics”:
The only fair is „laissez-faire”.

17. 17
Economic Administration of Monopoly Capitalism
Reason for State intervention:
 Market stability: recession, inflation, unemployment, poverty
 Capital concentration: market competition was eliminated
Forms of state intervention:
 Competition supervision: public law means
 Customer protection: more branches of law
 Decree legislation: can adapt to the economic circumstances
Economic policy:
 Keynes theory: based on increase of supply
 New Deal: Roosevelt government in 1930-s

18. 18
Economic Administration of Communism
1. Military economic administration
Features:
- - Russia, 1917. – under the power of the Bolshevik party
- - Eliminated market mechanisms
- - Based on violence, executions, imprisonments, deportation
Economic measures:
- - Nationalization: industrial enterprises, under state control
- Agricultural large estates: lands were given to peasants
- Forced management with employees: under political order
- Allocation of products: based on class positions
Result: economy collapsed

19. 19
Economic Administration of Communism
2. Direct Planned Economic Administration
 New economic policy (NEP) by Lenin
- Market mechanisms in a limited way
- Compromise: interest of the peasant (kolhoz) and small business
firms
 Features:
- Economic plan:state-owned enterprises
- Price and wage regulations
- Relative economic independency
- Establishment of „kolhoz”

20. 20
Communist Economic Policy
 Features:
- Extensive development in the economy
- Sacrifice of welfare
- Development of heavy and military industry
- Political bargaining mechanisms
Results: (Janos Kornai)
- Soft budgetary limit
- Shortage
- Lack of interest

21. 21
Economic Administration of Communism
3. Indirect Planned Economy
In Hungary, from the 1960-s
Steps:
 Economic independency of state-owned enterprises: (1968)
bigger interest
 Legal and organizational reform: (1984) self-governing bodies
 Economic regulators: plan directive was eliminated
 Central economic administration:
- General authorities: finance, labour, wage and price regulator
- Sectoral ministries: industrial, agricultural, trade

22. Hungarian Economic
Administration
• „The happiest barrack” – „Goulash
Communism”
- Small companies: even in the state-owned
enterprises (after the working hours)
- Price regulations: cheap basic goods and
services – high price, e.g. cars
- Increasing living standard (only in Hungary):
state-owned flats, weekend houses, cars
22

23. „Second Economy” in Hungary
- Market based on small enterpreserhips on the
pheriphery of the economy
- State-owned enterprises were dominant (90%)
- Real market – greater economic efficiency and
growing wealth
- Loans from foreign banks – economic problem later
- Involved agreement with the politics: not to care
about dictatorship, in return getting greater wealth
23

24. Consequences during the Transition
• Late 1980-s: spontaneous privatization
- Former political elite – saved its political power to
economic (no statistical data)
• Beginning of 1990-s: „political privatization” was put
under state direction – no parlamentary control
• Mid 1990-s: privatization of the infrastructural
services
• Laws: privatization without any limitation
• 2010: nationalization tendencies
24

25. Right Wing Critics
• Neoliberal, overwhelmed privatization (stategic
property of the state)
- Established a left-wing „paraseline”, media empire,
corruption for financing election campaign
2010: tools: illiberal democracy: to squeeze ot the
former communist elite from the economy
- State-monopolies: sell to own paraseline
- Unfavourable conditions in the market (state loans,
extra-taxes, new public tenders, distribution of EU
funds)
- Ideology: own capitalist class, interest of domestic
economy
25

26. 26
Mixed Economies
Welfare state: after the 2nd World War – Western Europe
- Provident state – high redistribution
- Wide welfare services: full employment, education, housing, health
care, social aids
Neoliberal economic policy: from the 1980-s – Reagan, Thatcher
Emphasizing monetary economic policy: (fiscal policy is less
capable) – Chicago School
- Supervision only over the money market
- State withdrawal from welfare
- Against high taxes: competiveness, economic growth

27. Questions?
27