ABSTRACT
Effective state–business relations (SBRs) or public–private sector dialogues has been identified as an important ingredient of economic growth at the macro-level (see OECD 2006; te Velde 2006). SBRs are important because there are both market and state failures. Appropriate government capacity and policy is necessary to support the private sector, which can be enabled by good SBRs, for instance by matching and coordinating supply and demand in the market for skills. Moreover, effective SBRs lead to a more optimal allocation of resources in the economy, including an increased effectiveness of government involvement in supporting private sector activities, removing unnecessary obstacles and providing checks and balances on government intervention (te Velde 2006). As such, SBRs can also help in stimulating and sustaining innovation, if government takes the lead and encourages the private sector, research institutions and universities to invest in research and development by providing incentives, venture capital for new initiatives and protection of property rights, and hence create the conditions for innovation which affects the productivity of firms (Schumpeter 1942).
