ABSTRACT
The rapid growth of public expenditures and the escalation of budget deficits in developed countries have led to new consideration of the old problem of the proper, respective roles of the state and the market. The crisis of the welfare state has heavily shaken former certitudes regarding the benefits of a planned economy. This chapter presents the main lines of positive theory and provides its consequences for the market and the public sector as they relate to accelerated development. The school of development economics that has inspired the policies of many developing countries since the 1950s justifies a state-planned economy on the basis of two critical hypotheses. These are: the lack of rational economic behavior among the inhabitants of developing countries implies that the market must be rejected as a means of distributing resources; and governments can find technically optimal solutions and implement them without excessive costs.
