chapter  9
26 Pages

Redefinition of government functions

WithCai Fang

Nobel Economic Prize winner Arthur Lewis was confused about the fact that “a government failed maybe because it did too little or it did too much,” which is regarded as the “Lewis Paradox.” The earlier industrialized developed countries have been unable to break this Lewis Paradox all along. Since the birth of modern economics, the argument that the government is just a “night-watcher” has been generally accepted. Adam Smith says the government should keep away from economic activities and the market as far as possible except for the engagement in basic functions involving national security and order. Since British economist Keynes’ theory of government intervention dominated Western economics, market economy countries have accepted the concept that a government should influence economic activities in a necessary range. The structure of the early development economics asserted active government intervention, dominated in the world from the 1950s to 1960s and had material influence on policymaking of developing countries.