Comment on the extent to which market friendly reforms promote economic development
Market liberalisation and privatisation is one example of market friendly reforms which can promote economic development. This policy would lead to an increase in allocative efficiency, eliminate the potential for corruption and also eliminate productive inefficiencies. It would also allow the profit motive to raise the levels of investment through the process of foreign direct investment and this should lead to an increase in economic growth. One other market friendly reform which will promote economic development is that of fiscal discipline. Fiscal discipline refers to the elimination of budget deficits, limits on government spending and the development of a low and broad tax base. This should lead to economic development because it will stop the process of crowding out and also allow the private sector to be at ease with doing business and not be afraid of sudden changes in regulation, like tax increases for example. However, these market friendly reforms may not promote economic development. If price controls were still in existence, when the industries were in private hands it may affect the incentive for firms to engage in business in that country because it will stop them from achieving maximum profits and also if the price ceilings were too low it could mean firms may make a loss. In this instance, the likely hood of economic development taking place is minimal. If the achievement of fiscal discipline came at the expense of cuts in healthcare and education, it will worsen the level of human development and in the long term economic development, as it would lead to an uneducated and unhealthy