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Problem Perceptions and Policy Approaches: Market Versus State Failure

6 May, 2015 - 09:39

Some scholars view market failure as the chief cause of the problem. They see the state as the appropriate actor with sufficient capacity and legitimacy to correct these failures. Others argue, however, that in addition to market failures, the limited capacities of governments to intervene in market activities are part of the problem. They claim that ‘state failure’ results from conflicting policy objectives for governments to protect the environment and to further economic growth and employment at the same time. In addition, governments often lack the necessary information and knowledge required for the effective and efficient correction of market failures. Governmental regulations therefore at best support the ecological modernisation of economies by redirecting modernisation processes towards environmentally sounder technologies. Ecological modernisation alone, however, will not overcome structural rigidities, and in many cases, its achievements are compensated, and often overcompensated, by economic growth.

The conclusions based on this state failure diagnosis vary considerably. Some scholars stress the need to better involve other stakeholders to compensate insufficient state capacities. Others hope that in the long run, autonomous trends of technical modernisation will automatically reduce emissions. A third group of studies stresses the deficits of traditional command and control but also simple incentive based policies. More complex strategies, often in an evolutionary spirit, such as strategic niche management, transition management, or recently “time strategies” and other types of innovation policies and ‘ecological industrial policy’ which build on and aptly use and modulate ongoing innovation dynamics and rely more on the interaction of political and broader societal forces, have been advocated for. Yet it is open if these strategies are likely to bring about the necessary changes.