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State should regulate, not dominate business

May 29th, 2012

A conservative economist welcomes efforts by the government to increase the state’s role in overseeing markets. He warns however that the government should only get involved in the markets temporarily to restore normality, instead of becoming a permanent actor.

In Heti Válasz, conservative economist Péter Ákos Bod cautions against exaggerating the role of the state as a reaction to the financial crisis. “The moral is that unregulated markets are prone to irrational risk-taking, and so governments need to actively regulate them.” This, however, does not imply that state actors are more prudent, Bod adds, pointing out that another cause of the financial crisis was increased public debt.

Bod believes that the emergency created by the financial crisis made it necessary for governments, including the Hungarian government, to test unusual policies. Such ‘unorthodox measures’ (as the ones applied by PM Viktor Orbán) involve protectionism and even occasional nationalization to avert a complete melt-down of the economy.

But these steps should be considered only as exceptional and temporary, Bod warns. The unprecedented government involvement in the economy was useful in order to keep business alive, and the assumption was usually that once confidence is restored, governments should cease to be directly involved in the markets.

This, however, does not seem to be the case in Hungary, Bod notes. He finds it particularly unfortunate that the Hungarian government bought a significant quantity of the shares in MOL (see BudaPost, June29, 2011), acquired the Rába automotive company (see BudaPost, November 10, 2011) and has decided to set up of a new state-owned telecommunication enterprise, none of these steps were dictated by the crisis. Although such measures are usually welcomed by the Hungarian public, Bod believes Hungarians are unnecessarily distrustful of the markets and tend to forget that should the state run companies run up losses, the public will have to foot the bill.

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