The functions and activities undertaken by the modern state or government are complex and varied. This is due to the fact that there is a strong demand by the people for active state intervention in the social and economic affairs of the country. The statesmen of today do not place any limitation on the powers of the government to interfere in the social and economic spheres. The only governing principle is whether state action promotes general welfare. In every country of the world, the laissez-fair policy has been discarded and there is a strong swing towards adoption of Socialism, Fraser is right when he says that “Socialism or Collectivism is upon us, horse, foot and gun”.
The main functions which the modern state (government) now performs are as follows:
(1) Provision of Defense and Security: The primary function of the state is to protect the country from external invasion and to maintain peace and security within the country. For smooth and progressive working of the economic machinery, it is very essential that people should live in perfect peace. They should not be in fear of external aggression. Every member of the society should have full protection from the injustice or oppression of every other member of it. The stale expenditure providing security and justice is productive because it helps indirectly in carrying out the activities which are labeled as productive.
(2) Economic Function: The modern slate is actively intervening in economic spheres. Though it recognizes the individual rights in private property, it allows freedom of enterprise and contract. When it finds that its laws are being violated, it immediately intervenes for regulating the economic affairs. If the state finds that private capital is not forthcoming in certain industries, it assists private enterprise in establishing and running the industries. Sometimes, the government itself takes initiative and sets up industries.
The modern economists justify state interference in the following cases:
(a) Where Business is of Monopolistic Nature: There are certain businesses like railways, post and telegraph, canal, electricity, water supply, etc., which are extremely useful for the people. If they are given into private hands, the consumers can be easily exploited. So the government, in the interest of the people, takes control of these businesses and runs them almost on a non-profit basis.
(b) Where Private Capital is not Attracted: If in a certain industry or industries, the private capital is shy because of the inadequate return or there is no return at all, the state must step in and provide the requisite capital. The cases where private capital is not attracted are public health, libraries, museums afforestation, road construction schemes, parks, etc.
(c) Protection of Economically weak Persons: In a competitive society, the factory workers are often exploited by their employees. The State therefore, must take suitable steps for protecting the legitimate rights of a class having very weak bargaining powers.
(d) Exploitation by Forming Monopolistic Combination: Sometimes the businessmen form cartel and trust and exploit the consumers by charging very high prices. The state in such cases must intervene and prohibit the formation of such combination.
(e) Protection of Consumers: The state must protect its citizens against adulteration of food, sale of intoxicants, etc.
(f) Supply of Currency: The state must take full control of the supply of currency in the country. This will help the government in securing stability of prices, suitable steps to reduce inequality of the income in the country. For this purpose, it adopts progressive system of taxation, levies death duties on inherited property and provides social services among the poor section of the community.
(g) State and Economic Planning: The state in order be speed up the economic development in a balanced manner, formulates programmes and policies to harness the human efforts and physical resources to the maximum possible extent. It fixes targets and priorities and then proceeds to complete them within the specified period.
(3) Direct Social Activities: Every modern state takes keen interest in providing social services to its citizens. The government give funds to the needy, sick and unemployed persons, it provides them free education, free medical and old age pensions. It takes care of public health and provides them housing facilities. It opens parks, libraries, for the benefit of the people.
In short, the state’s intervention in economic affairs takes the form of:
(a) Provision of facilities to the businessmen for carrying on their businesses.
(b) Direct encouragement of the business by providing them protection from foreign competition, granting of bounties, subsidies, relief and taxation, etc.
(c) Regulating economic enterprise on proper footing.
(d) Taking actual control and ownership of certain important industries.
In the last decade of the 20th century and in the 21st century, the role of the state is being considerably reduced. Instead of performing the role of producer, controller and regulator, it will act as protector, promoter and provider.