Economic development is a complex process influenced by a wide range of factors, including political, social, and economic factors. Developing countries are often characterized by low levels of economic growth, poverty, and inequality. The question of how to promote economic development in these countries has been the subject of debate and research, with different scholars suggesting several issues and solutions in the context of business and society. One key issue that is at the centre of most arguments is the role of government intervention in the economic development process. Many arguments support the idea of a free market with minimal government interventions as the ideal solution to spur economic growth for all economies. However, this essay intends to illustrate that a moderate extent of government intervention is critical to spurring sustainable economic growth in developing nations. That is, the governments of developing economies need to intervene in the economic development process by creating a conducive environment for sustainable growth, addressing market failures and ensuring inclusive development. However, the interventions need to remain moderate to avoid the negative consequences of excessive government interventions.
Many developing economies are vulnerable to manipulative capitalist policies that prioritize profits over societal needs such as sustainable growth, which creates the need for a level of government intervention to protect all stakeholders through policy regulation to promote sustainability. McLaughlin & McMillon (2016) argues that businesses in a capitalist system should prioritize multiple stakeholders, including the environment and social systems(p.3). It is critical that the governments in developing nations create a business environment where business practices are guided by long-term capitalism rather than financial short-termism. As in, “Long-term capitalism rakes a deeper view of the role of business in society, recognizing that the interests of stakeholders converge with the interest of the broader community (p.4). This argument indicates the critical role that developing nations’ governments play in developing policies that ensure all businesses in the nation have responsible and sustainable practices that account for all stakeholders, including the society and practices, not just profit. This is because, in the long run, the interests of stakeholders’ businesses are not only focused on maximizing profits but also on creating value for all stakeholders, including customers, employees, suppliers, and communities. This can be achieved through regulations and policies that promote responsible business practices and sustainability.
Apart from having policies to ensure responsible business practices, government interventions in developing nations need to provide infrastructure, such as roads, ports, and power, as well as create institutions that support the functioning of markets. According to McLaughlin and McMillon (2016), “companies are beginning to recognize an opportunity and even an obligation to use their scale and expertise to reshape global systems in ways that address the complex problems facing society” (p. 4). The governments should have adaptive infrastructure development and financial policies that are responsive to the complex social and economic needs. Having such a system ensures that there is a balance between a government’s development policies and private sector interests. For example, in Ethiopia, the government has been able to promote growth by designating priority manufacturing industries, such as garments and textiles, agro-processing, meat processing, leather and leather products, and construction (Chang, Jauge, & Irfan, 2016). The authors argue that this success can be attributed to the country’s developmental orientation and its impressive industrial policy-making capabilities. Consequently, governments, especially in developing nations, need to intervene in order to provide adaptive infrastructure development and financing policies for private sector development and to promote industrialization. The key is to have policies and financing programs that support priority industries and assist firms with technological upgrading.
Another critical intervention for governments of developing is their role in ensuring inclusive development for their economically diverse demographics. Inclusive development is an approach to economic development that focuses on reducing poverty and inequality, which is critical for developing economies marred by high poverty rates and inequalities. Rapid growth in a country such as India based on deregulation that ignored the need for inclusive development offers an example of the dangers of deregulation in developing nations. Ghosh (2015) argues that recent rapid growth in India has been based on and resulted in growing inequalities. “Recent high economic growth in India was related to financial deregulation that sparked a retail credit boom and combined with fiscal concessions to spur consumption among the richest sections of the population” (p. 13). This led to rapid increases in the aggregate gross domestic product (GDP) growth, even as deflationary economic policies, poor employment generation and persistent farming crisis reduced wage shares in national income and kept mass consumption demand low. Private accumulation has relied on existing social inequalities that create segmented labour markets that keep wages of certain social categories low and on types of exclusion that allow large-scale displacement and dispossession without adequate compensation. Governments need to intervene to address these inequalities and promote inclusive development through policies and programs that promote social inclusion, such as education and health programs, as well as policies that ensure that displaced and dispossessed people receive adequate compensation.
The need for moderate government intervention in developing nations can also be understood from the importance of the role of providing institutions that support economic growth. “Economic development, state intervention and the role of institutions: Evidence from China and India” (Gallego, 2018) in the Journal of Development Studies argues that governments need to intervene in order to provide public goods and services, such as education and health, and to address market failures. The importance of institutions and governance in determining the effectiveness of government intervention cannot be underestimated. For instance, in China and India, state-owned institutions have contributed immensely to the development of industrial policies that drive their economic growth (Gallego, 2018). The highlight of the paper is that cooperation between government institutions and industries that support a nation’s economy acts as a guide for economic development. For instance, government research institutions can establish that a capitalist system should prioritize multiple stakeholders, including the environmental and social systems that businesses require to function, as essential to sustained value creation (OECD, 2020). Combined with the example from Ethiopia, it is evident that government intervention, when guided by clear and consistent policies, can play a vital role in promoting economic development in developing countries.
In conclusion, government intervention plays a crucial role in promoting economic development in developing countries. While market forces are important in driving economic growth, government intervention in the form of industrial policies, state-owned enterprises, and regulations can shape development paths and ensure that growth is inclusive and sustainable. However, it’s important to note that the effectiveness of government intervention depends on the quality and consistency of the policies implemented. Therefore, it is crucial for governments in developing countries to carefully design and implement policies that promote sustainable economic development for all stakeholders, encourage inclusive development and provide appropriate institutional and infrastructure support that support the development of their economies.
Chang, H-J., Jauge, J.L. and Irfan, M. (2016). Transformative Industrial Policy for Africa. United Nations Economic Commission For Africa. b11560885.pdf (uneca.org)
Ghosh, J. (2015). “Growth, industrialization and inequality in India”, Journal of the Asia Pacific Economy, 20:1, 42–56, DOI: 10.1080/13547860.2014.974316
Gallego, F. (2018). Développement économique, intervention de l’Etat et rôle des institutions: preuves de Chine et d’Inde. Journal of Development Studies, 54(4), 557-574.
McLaughlin, K., & McMillon, D. (2016). Business and Society: Reshaping Global Systems. In Re-imagining Capitalism for the Long Term (pp. 1–20). Oxford Scholarship Online. doi:10.1093/acprof:oso/9780198785453.003.0001
OECD. (2020). Developing countries and development cooperation: What is at stake? OECD. Retrieved January 15, 2023, from https://www.oecd.org/coronavirus/policy-responses/developing-countries-and-development-co-operation-what-is-at-stake-50e97915/