REVIEW #7: Governments in Business and the Fate of De-Etatization

Milton Friedman once remarked that “you must separate out being pro-market from being pro-business”, and continued: “the two greatest enemies of the free enterprise system, in my opinion, have been on the one hand my fellow intellectuals, and on the other hand, the big businessmen – for opposite reasons”.


Today, it seems, the governments of new Europe are often “pro” their involvement in businessdirectly through state-owned-enterprises (SOEs) or indirectly through regulating entry and exit into markets.

The specific problem of post-communist Europe is that, not too long ago, reform leaders succeeded in forcing the governments out of direct, firm-level involvement in economic activities, and simplified tax and quasi-tax (aka “business environment”) regulations to unleash private initiative and prosperity. The philosophy of those reforms, as far as I can judge as a participant and witness, was no fancier that Smith’s “peace, easy taxes, and a tolerable administration of justice” (1955). The individual application of that philosophy was a challenge, but the processes were relatively similar, as one can read in this volume.

As recently as 27 years ago, government enterprises typically contributed to above 97% of the individual countries’ GDP. Today, only Cuba and North Korea are in that situation. By 1998, new Europe’s average government share in GDP was reduced to 40%, and to 20%-25% by 2010. The progress, besides in Croatia and Slovenia, with 30% and 40%, respectively, was so significant that EBRD stopped measuring the ratio.

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