INTRODUCTION Had John Stuart Mill deleted the clause ‘at this particular period,’ the sentence quoted above would be timeless, as it should be; with or without the clause, though, the sentence is as relevant now as it was a century and a half ago, when it was written. Indeed, the question of ‘the proper limits of the functions and agency of governments’ continues to be one of the issues in political economy yet to be settled. Today, the establishment of an appropriate boundary between the roles, responsibilities and activities of the public and the private sectors in the economic sphere remains as complex, dynamic and elusive an endeavor as ever. Complex because there are many areas where both sectors interact closely and there exist no hard and fast criteria to determine precisely where public action takes off or should take off and private activity begins or should begin. Dynamic because the interaction between them varies over time with society’s preferences for public services and with its willingness to finance them. And elusive for both of those reasons: the absence of clear lines of separation between the two sectors and the changing nature of social preferences. It is difficult to gather a firm consensus about how far should government participate and interfere in the economic process and it is just as hard to keep at all times the demand for public services in line with social willingness to pay for them. And yet, some demarcation between the government and the rest of the economy is necessary as the basis for the design and implementation of economic policy. It is through the interplay of government policy and private activity in the market that the economy’s performance is determined and the

quality of this performance will reflect the efficiency of their respective, but separate, roles.