Market forces alone can’t guarantee that economies and businesses will thrive because that also requires the support of state institutions, European Bank for Reconstruction and Development President Suma Chakrabarti said.
At the same time, the leader of emerging Europe’s development bank defended a private sector-led model for economic prosperity and rejected “state capitalism” as a preferred way to foster progress.
“The preconditions for an effective market economy have to be delivered by the state,” he said in a speech prepared for delivery at the Carnegie Endowment for International Peace in Washington on Wednesday. “Sustainable, inclusive growth should not simply be left up to the invisible hand of the market.”
The London-based lender, owned by 64 countries, the EU and the European Investment Bank, invested 8.9 billion euros ($9.4 billion) last year in projects ranging from Morocco to Mongolia. At first working in the post-communist east, it expanded its geographical scope to include nascent democracies in North Africa and the Middle East in 2011. It’s also financing projects in cash-strapped Cyprus and Greece through 2020.
The state has a role to play in the areas of policies, institutions, leadership and long-term perspectives, Chakrabarti said. The EBRD is seeking to achieve the right balance between state and market in its own activities, investment choices and priorities to help raise standards of living in less developed countries, he said.
“In the EBRD we question whether countries can get back on the right path and catch up to the living standards of their more advanced neighbors without fundamental reforms and strengthening of the state and governance in a number of areas,” Chakrabarti said.