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The Limits of the MarketThe Pendulum Between Government and Market$
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Paul De Grauwe

Print publication date: 2017

Print ISBN-13: 9780198784289

Published to Oxford Scholarship Online: January 2017

DOI: 10.1093/acprof:oso/9780198784289.001.0001

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External Limits of Governments

External Limits of Governments

(p.75) Chapter 7 External Limits of Governments
The Limits of the Market

Paul De Grauwe

Oxford University Press

The fundamental cause of limits to government action is the same discrepancy between individual and collective rationality which limits the market system. Individuals resist the attempts of government to harm private interests in favour of the collective. The big challenge of governments is therefore to bridge the difference between individual and collective rationality. This is best achieved in democratic forms of government of an inclusive type. Inclusivity makes it easier for the government to achieve consensus on decisions necessary to promote collective interests. The individuals who are harmed by the collective action are compensated by the others, so they will agree more easily to interventions. Decisions can take a long time, but when made are backed by broader support. Exclusive authoritarian regimes have serious problems gaining support because it is easier for private interests to infiltrate such political systems, so there the discrepancy between private and collective interests is greater.

Keywords:   inclusive systems, exclusive systems, democratic systems, authoritarian systems, collective action

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