The State and Economic Development — Flashcards

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The Great Depression of 1929-33 dealt a major blow to laissez faire policy. It showed that the economy could face serious instability without state action. As a result, government intervention came to…

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Laissez faire means a policy of non-interference by the government in trade and industry. Adam Smith strongly supported this idea and is called the Father of Economics.

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Keynes rejected the idea that government should remain passive. He argued that the state must play a strategic role in economic development of a country. He also regarded fiscal policy as an important…

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W.A. Lewis stated that the behaviour of government plays an important role in stimulating or discouraging economic activity. He also said that no country has made economic progress without positive st…

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Private sector refers to economic activities owned and controlled by individuals and private companies. It is mainly guided by the motive of profit. For example, private firms decide what to produce b…

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Public sector means economic activities owned and controlled by the government. It is mainly guided by public welfare. Decisions in this sector are taken by the government, not by private owners.

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Two Industrial Policy Resolutions were issued after Independence in 1948 and 1956. These policy resolutions divided the economy into private and public sectors and supported a mixed economy.

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The public sector is guided mainly by public welfare, while the private sector is guided mainly by profit motive. This is one of the most important differences between the two sectors.