The changing role of the state : institutional dimensions

The purpose of this paper is to briefly develop the following points: (1) The argument that the size of the public sector needs to be drastically reduced has probably been taken too far, without really analyzing the full consequences of the shift. Often the dismantling of some functions implies the establishment of others. (2) A crucial prerequisite for the successful development of the private sector is the existence of a modernized and highly efficient public sector. (3) The number of activities that the public sector can safely and effectively undertake is quite limited. To force additional functions on the public sector increases exponentially the chances of failure and poor performance. (4) The change in development strategy also requires as a prerequisite a modernization and an improved performance of the political process. The analysis has the Latin American reality as background, but is based on the broader experience of the World Bank in this area.