In many underdeveloped countries, the state plays an important and increasingly varied role in economic development today. There are four general arguments, all of them related, for state participation in economic development. First, the entrance requirements in terms of financial and capital equipment are very large in industries, and the size of these obstacles will sere as barriers to entry on the part of private investors. One can imagine that these obstacles are imposing in industries such as steel production, automobiles, electronics, and parts of the textiles industry. In addition, there are what Myint calls “technical indivisibilities in social overhead capital.” Public utilities, transport, and communication facilities must be in place before industrial development can occur, and they do not lend themselves to small-scale improvements. A related argument centres on the demand side of the economy. This economy is seen as fragmented, disconnected, and incapable of using inputs from other parts of the economy. Consequently, economic activity in one part of the economy does not generate the dynamism in other sectors that is expected in more cohesive economies. Industrialization necessarily involves many different, sectors; economic enterprises will thrive best in an environment in which they draw on inputs from related economic sectors and, in turn, release their own goods for industrial utilization within their own economies. A third argument concerns the low-level equilibrium trap in which less developed countries find themselves. At subsistence levels, societies consume exactly what they produce. There is no remaining surplus for reinvestment. As per-capita income rises, however, the additional income will not be used for saving and investment. Instead, it will have the effect of increasing the population that will eat up the surplus and force the society to its former subsistence position. Fortunately, after a certain point, the rate of population growth will decrease; economic growth will intersect with and eventually outstrip population growth. The private sector, however, will not be able to provide the one-shot large dose of capital to push economic growth beyond those levels where population increases eat up the incremental advances. The final argument concerns the relationship between delayed development and the state. Countries wishing to industrialize today have more competitors, and these competitors occupy a more differnentiated industrial terrain than previously. This means that the available niches in the international system are more limited.For today’s industrializers, therefore, the process of industrialization cannot be a haphazard affair, not can the pace, content, and direction be left, solely to market forces. Part of the reason for strong state presence, then, relates specifically to the competitive international environment in which modern countries and firms must operate.
