Some problems of Government Intervention in Developing Countries
• Individuals may know more about their own
preferences and circumstances than the government.
• Government planning may increase risk by pointing
everyone in the same direction—thus making
bigger mistakes than markets.
• Government planning may be more rigid and inflexible
than private decision making because complex
decision-making machinery may be involved
in government.
• Governments may be incapable of administering
detailed plans.
• Government controls may block private-sector individual
initiative if there are many bureaucratic
obstacles.
• Organizations and individuals require incentives
to work, innovate, control costs, and allocate efficiently,
and the discipline and rewards of the market
cannot easily be replicated within public enterprises
and organizations. Public enterprises are
often inefficient and wasteful.
• Different levels and parts of government may be
poorly coordinated in the absence of the equilibriating
signals provided by the market, particularly
where groups or regions with different interests are
involved.
• Markets place constraints on what can be achieved
by government; for example, resale of commodities
on black markets and activities in the informal sector
can disrupt rationing or other nonlinear pricing
or taxation schemes. This is the general problem of
“incentive compatibility.”
• Controls create resource-using activities to influence
those controls through lobbying and corruption—often
called rent seeking or directly unproductive activities.
• Planning may be manipulated by privileged and
powerful groups that act in their own interests, and
planning creates groups with a vested interest in
planning, for example, bureaucrats or industrialists
who obtain protected positions.
• Governments may be dominated by narrow interest
groups focused on their own welfare and sometimes
actively hostile to large sections of the population.
Planning may intensify their power