This document discusses state institutions of economic governance. It outlines several goals governments must follow in developing their economies, including GDP growth, efficiency, welfare of citizens, and upholding certain values. The document also examines two extremes of state intervention in economies - liberal capitalism with no intervention and communist economies with total intervention. It provides reasons for some level of state intervention, such as to ensure market stability, competition, poverty reduction, and provision of public services. Finally, it outlines the key institutions involved in economic governance, including political parties, parliaments, governments, administrative organizations, courts, and international organizations.

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State Institutions of Economic
Governance
State and Governance
Prof. Dr. Maria Bordas
National University of Public Service
Faculty of Public Governance and Internatitional
Studies
2020.

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1. When does the Economy Operate Well?
Goals the Government has to follow:
a.) Development of the Economy
GDP (Gross Domestic Product)
Other aspects: mode of production, servicing sector, regional
development, structural problems
b.) Efficiency of the Economy
Widest sense: best production opportunities
Cost effective
Effective
Successful

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Goals of the Government has to follow:
c.) Welfare of People
Military industry: Russia, nazy Germany, Iran
Poverty: African countries
Communist economic administration: restrictions
d.) Certain values and moral expectations
Role of politics: public interest – personal interest
Example: privatization in Hungary, Trump’ economic policy
Other factors: customs, religion, ideology, social values, attitudes
Example: sharing in taxation in Hugary, sacred cows in India,
Palestine people

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2. Questions of State Intervention in the Economy
State intervention: how the state let market mechanisms prevail
The two extremes:
 Liberalcapitalism (however, it was never true in this clear form)
Theory of Adam Smith: „Invisible Hands” or „Laissez-Faire”:
- Free market competition
- Against any state intervention
 Communist economy
- Total state intervention in the economy
- Elimination of market mechanisms: military economic
administration, nationalization (confiscation) of private property,
plan-directives, use of human resources without any limitation,
political redistribution

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Reasons for State Intervention in the Economy
State intervention: in the case of market failure (government
failure)
1. Market stability: recession, inflation, unemployment (by
economic policy (fiscal and moneraty – or emplyment government
actions)
2. Market competititon: dominance of monopolies, public law
means: to keep competition by competition supervision
3. Poverty: unequal incomes in the liberal-capitalism – tool:
redistribution (progressive tax system, family allowances, aid for
the poor and disabled) – Piketty: The Capital in the 21th Century
4. Public services: state responsibility, public interest

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6. Economic activities:
public aim, not profitable - ste state finances them
examples: public health, basic research
7. External economic effects:
tort (cause damage) without regulations
examples: environment protection, quality and safety, climate
change
8. Information asymetry:
- insufficient information, regulation
examples: customer protection, banking supervision, health care

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3. Expectations from Economic Governance
Expectations: flexible, quick, client-oriented, having expertise, well-
managed, efficient, etc.
European public administration:
Weberian model: centralized, public-private law distinction, heavily
regulated and law-centralized system,
American public administration:
Management-oriented: decentralized, self-governance, business
principles
New requirements: smaller and cheaper state, globalist tendencies,
regional development, etc.

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4. Institutions of Economic Governance
a-.) Organizations of economic governance
 Political parties: economic policy, right wing and left wing –
populist tendencies
 Parliament – local governments: legislation based on the
government economic policy
 Government: determines economiy policy
 Administrative organizations: prepare government decisions
and implement acts (ministries)
 Iudicial : decides legal disputes (e.g. office of competition)
 International organizations: World Bank, IMF, European
Union, WTO

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Institutions of Economic Governance
b.) Types of Economic Governance
 Economic policy: monetary – fiscal, sectoral policies, e.g.
employment, agricultural,
 Legislation: acts, decrees – interpretation of the constitutional
court
 Administrative jurisdiction: decision in authorative cases,
based on legal disputes or official initiation
 Organizing public services: by state-owned enterprises, or
regulations
 State property management and public money utilization:
privatization, treasury assets, state budget, state contracts

10. Questions?
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