Slow growth, lagging private savings and investment, high inflation, balance of payments deficits, heavy debt burdens, continued poverty and unemployment are, in part, the result of excessive growth of the public sector. Even in those cases where external events beyond the control of individuals countries are the cause of many difficulties, the actions of governments are often inappropriate and fail to mobilize effectively the resources of a country in response to a crisis.
In developing countries the urgent infrastructure needs, the low levels of savings and investment, the need to foster economic growth through modernization, and the availability of concessional funding for public projects have all served to encourage the rapid expansion of public sector programmes. It is only with the economic stagnation resulting from the debt crisis that the weaknesses of this approach have been acknowledged. The late 1970s also marked a turning point in the centrally planned economies, where reliance on direct command by government and the use of state-controlled enterprises was increasingly seen as a drag on economic growth. By the end of 1989 the inadequacies of this approach, and the need to harness private interest and initiative to stimulate economic growth, were widely recognized.