Ultimately, what should be the scope of the State?

With the exception of anarchist thinking, which should not be confused with chaos, but rather with the absence of the State, the role of the State as a regulatory agent is no longer debated. It is impossible to imagine millions of inhabitants living together in cities without an empowered entity that brings uniformity to certain situations, such as property registration, traffic rules, currency in circulation, and so on. Nowadays, it is practically impossible to imagine social coexistence without the role of the state.

Hence the inevitable question. How big should the state be? Should it only have a regulatory role, as liberals want, or should it have a greater presence in the economy, as socialists preach? The extremes have already proven to be wrong. Communism did not work, and please do not argue that China is a communist country, and pure liberalism ended up being fertile ground for greater social inequality and the birth of communism and fascism. Admitting that the state is necessary does not mean consenting that public power should be present in everything. Is there, then, a formula that applies to all countries? That is where the debate lies. Does importing liberal ideas from Chicago that work in the US mean that they will work here?

Countries with low per capita income and enormous social and income distribution inequalities need greater state involvement in the economy. As much as I agree with Adam Smith's thinking in The Wealth of Nations, whereby individual development ultimately generates more wealth for the collective, I recognize that in certain projects of social necessity, but with low economic returns or high risk, only the state can serve as an agent for their development. Sectors such as infrastructure, education, transportation, and public health are unlikely to thrive in underdeveloped countries without a state presence. These are sectors that need public incentive policies, given the high financial volumes, high risk, insufficient capital markets, and financial markets that are highly concentrated in a few agents, in addition to typically high interest rates.

Even so, the role of the State should be limited to creating conditions for economic viability. Private agents should execute the project, reap the imagined profits, or assume the unwanted losses. The State should not, for example, interfere in the price of the product or service provided. If the price is excessive, it should stimulate national or international competition so that prices adjust to market practices. The state should ensure that there is a choice. It should avoid patronizing citizens by making choices for them, as if they were incapable.

Regulate only to correct distortions, but without interfering with free trade

In the regulatory sphere, the state should be concerned with correcting distortions. Take health insurance plans, for example. The role of the state should not be to regulate whether a particular test or medical procedure should be covered by the plan, but rather to oblige the insurance company to offer coverage that is customized to the customer and ultimately charge for the chosen package. Why would a single man want a plan that covers childbirth if he does not intend to have children? Why force motorcyclists to wear helmets if they believe in their abilities? Why ban Uber motorcycle services? Some will say that traffic accidents cost the State money. Well, just charge a much higher vehicle tax so that motorcyclists can choose between their pocketbook and greater risk to their lives. There is always an indirect cost to excessive regulation, which is the cost of enforcement. In the case of Uber taxis, it is enough to create the requirements for the service. Motorcycles of certain colors and models, places where they can travel, prohibition of weaving in traffic, specific fees to cover possible accidents, instead of discussing the existence of the service. If there is demand, legal or illegal supply will emerge.

Some sectors require greater state involvement for their development. Hence the need for public policies. This is not a question of subsidies, a model that is not sustainable in the long term, but of incentives through public policy. Nor is it a question of choosing privileged sectors, but of recognizing that certain sectors will not exist without state involvement. How can the naval, aeronautical, technological, and energy industries, to name a few examples, be developed without the certainty of adequate infrastructure for the sector? The role is that of an inducer and never a participant.

Specialized economic literature uses econometric studies to show an inverse relationship between the size of the state and a country's economic growth. The larger the state, the lower the economic growth. American economist Richard Rahn goes so far as to establish an optimal size for the state between 15% and 25% of gross domestic product (GDP). In other words, he recognizes that government spending can maximize economic growth, but that above a certain level it becomes harmful. The theory is used by classical liberals to defend the idea of reducing public spending and taxation. It is also worth reading a 2011 study by the European Central Bank on 108 countries from 1970 to 2008, which concludes that "there is a significant negative effect of the size of the state on economic growth" and that "the negative effect of the size of the state on GDP per capita is more pernicious in countries with low-quality institutions," as is unfortunately the case in underdeveloped countries.

Private property is a sign of freedom and synonymous with efficiency.

As St. Thomas Aquinas explained, private property is much more effective than its alternative, firstly because "each person is more diligent in managing what belongs exclusively to him than what is common to all, and secondly because human affairs are administered in a more orderly manner if each person is responsible for looking after his own interests." Thus, an essential condition for progress is individual freedom and a robust rule of law that protects citizens from the state. The state must regulate the contours of economic activity to make them attractive, and private initiative must assume the risks inherent in its operation.

The combination of government and private initiative gave rise to major social and economic developments. The railroad that crosses the United States from east to west is an example of demand created by the government and an opportunity well seized by private initiative. Neither private initiative nor government alone can explain Silicon Valley. Both occurred in different areas. One in the creation of knowledge, the other in the establishment of an industry. As Pedro Doria explained in his recent article, "Had it not been for the government, there would not have been a creative explosion of technological development in that corner of California starting in the 1970s. And had it not been for private initiative, the creative explosion would not have become the most powerful industry in the world in this decade we are entering. It was the US government, mainly through the Department of Defense and NASA, that funded the scientists and engineers who created the microchip, the mouse, and the internet... but it was not the US government that created Intel, the company that popularized microchips. In the area where Intel was born, several small garage companies were created, making computers that people could have at home. One of them was Apple.

The combination of state contributions and private initiative generates long-term social benefits. A democratic state must invest in knowledge and basic infrastructure capable of stimulating private initiative, creating a strong, open market that is confident that economic policy will not change with each election cycle.