Economics

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However there are also negatives to market oriented approaches to development. Most notably a market oriented approach may lead to an underconsumption of merit goods and an under provision of merit goods. Let us take the examples of health care and infrastructure such as roads and the diagram below.

The diagram shows that in a free market situation, these goods will be under consumed because it would seem pointless for private firms to provide goods which are non rivalrous and non excludable. If no firm is willing to provide this infrastructure then it may make it more difficult for workers to stay healthy if there are a lack of hospitals. If workers become less healthy than they will be become less productive and less able to work due to illness. If they are unable to work then they will not receive wages which will allow them to consume goods and services. With a less healthy workforce which is less able to purchase goods and services in an economy, the living standards may decrease as a result and prevent economic development. If a government were to intervene, there would be an increase in consumption of merit and public goods and potentially a more productive workforce. For example in Mexico in 1999 the government reduced their spending on healthcare and infrastructure projects by 15% and the result was an increase in unemployment of 5% in the following 3 years.

Overall the best means of combatting economic development should come through a combination of market oriented policies and interventionist. Market oriented policies could allow for lower prices and increased quantity of goods and services available in an economy, such as Vietnam in 2011. However this must be complimented by the Government ensuring an adequate consumption of public and merit goods to ensure a healthy and productive workforce who may see increases in wages and living standards as a result.