The year 1989 probably marked the culmination of a period of significant changes in perceptions of the role of the state. The revolutionary changes and upheavals in the Communist world and the concomitant crumbling of many (communist or non-communist) dictatorial regimes in Europe and in Asia are unmistakable indications that these states have simply not delivered the goods, material and immaterial, which were promised. The romantic idea of creating a “new” or “socialist” man has proved to be a complete failure. After decades of experimentation and repeated promises, disillusionment is spreading.

It is not only in (formerly) socialist countries with their strong tradition of centralized decision making, and government interference and involvement in the economy that the role of the state in general, and of the government in particular, as an agent of political and economic development is being increasingly questioned and disputed. In fact, it can be argued that the movement for less government interference and more individual decision making originated in the late 1970s and early 1980s within the industrialized countries with already more or less open societies and economies.

Interventionist policies, restrictive regulations, and state involvement in economic activity in the industrialized countries failed to achieve low unemployment, low inflation and high economic growth when external shocks were felt in the 1970s and 1980s. Quite to the contrary, interventionism and state involvement hampered structural adjustment and, thus, made the unavoidable changes even more painful in the long run.

Whilst these observations and interpretations are valid generally and few would arguably dispute them, there must, however, be some logic and reasons behind the state's greater involvement in the production of goods and services in particular, and its interference in the economy in general earlier on.

Traditionally there have been various rationale and objectives for the state's involvement in the economy: one rationale and objective is related to macroeconomic stabilization and the realization of a certain level of economic growth. Another important rationale and objective is to achieve a, by whatever definition, “fair and just” distribution of income and/or wealth among the various socio-economic groups of society. The third major objective of economic policy making is to secure the efficient use and allocation of scarce resources. In addition, the state is often expected to play an important role as an agent of development.