Market and State 4. Market and State Since the end of the cold war, nearly all of the world's countries have established'market economic systems'. In such systems, neither the amount of production nor the prices of the goods produced are centrally planned by the state('planned economy' was the economic system of the former East European States), but determined by the market forces of supply and demand. In order to convince the customer, companies compete against each other by in terms of quality and price. In the context of this competition, the price of a given good is the indicator of the relationship between the extent of the good's supply and the market's demand for it. As far as the theory goes, if the price of a product(e.g. crude oil) increases, this indicates that either the supply of it has decreased or that demand for it has increased. Market economies are usually good in reacting to such supply/demand changes and therefore production is usually quickly aligned to the needs of customers. In a lot of literature the market economy(or'market') is put in opposition to the state. While'market' describes the whole economic sphere,'state' stands for the political sphere. According to the basic liberal economic theorists(e.g. Adam Smith, 1723 – 1790), the state should be completely separate from the market. The thinking that the economic and the political sphere should be clearly dissociated still dominates the thinking of some market economy theorists, but reality has shown that a complete separation is neither desirable nor possible. 'Economic policy' describes the action that a state(more explicitly: the government) takes in the economic sphere. Its action can be quite diverse and can range from it operating as a customer, who buys products(e.g. asphalt for new streets), through redistributing wealth through the collection of taxes, to completely subsidizing industrial sectors. If some authors speak of'free markets' they do not refer to an absolute separation of state and economy, but use this term in a relative sense. As mentioned above, nearly the entire world's countries have some sort of market economic system and it is broadly accepted that'free markets' are the right mechanism to produce and distribute goods. The common approach is to seek a balance between liberalizing markets as much as possible, whilst allowing for as much state intervention as is needed. The exact balance is subject to constant negotiations between the relevant actors. Since the end of the 80s/beginning of the 90s worldwide market liberalization has led to an ongoing decrease in the level of state intervention. After the financial crises in 2008 and 2011, however, the public “The common approach is to seek a balance between liberalizing markets as much as possible, whilst allowing for as much state intervention as is needed.” 21