What is dirigisme?
Dirigisme is a type of economic management where the government sets and controls all important economic policies. The dirigiste state typically has a high degree of centralized power and autocratic rule. This means that the government sets prices, directs resources, and decides who can produce what.
Definition of Dirigisme
Also known as Dirigism; the French word dirigisme, meaning “management of the economy” was introduced in the 1930s. The theory of dirigisme is based on the idea that a country’s economic stability and growth can be improved by having a government manage the economy directly. Dirigisme is not limited to France or any one country; it has been used in a variety of countries around the world.
Features and Characteristics of Dirigism
- Centralized power
- Autocratic rule
- The government gives directives on investment either directly or through the use of fiscal policies, monetary policies, and other market instruments to force the economy to act as the government wants.
- The government owns and controls many enterprises in key sectors of the economy.
- The government controls the minimum wage or salary that is paid to workers.
- The prices of products can be controlled by the government too.
- Regulation of the labor market such as controlling employment
- Dirigism is flexible. It is able to change as needed in order to meet the needs of the economy. This flexibility makes it more adaptable to changing conditions; for example, a could subsidize the price of gasoline when the price rises and removes the subsidies when the price is stable and low.
Many countries practice dirigisme to some extent; for example, some countries develop new technologies through research institutes that are owned and controlled by the government; examples may include Nigeria, where research institutes like the National Veterinary Research Institute (NVRI) in Jos and Federal Institute of Industrial Research Oshodi (FIIRO) in Lagos, are owned and controlled by the government.
In Dirigisme, the government may decide to increase taxes in investments or sectors that it wants to discourage and reduce taxes or even tax breaks to direct the economy towards achieving the objectives of the government. Dirigiste economies may also subsidize certain products to encourage investments in such sectors. An example of dirigism would be a government subsidizing fertilizers to encourage agriculture.
Although most economies now adopt other forms of economic systems, some dirigiste characteristics are still practiced or applied in many countries today.
An Indian economist, Deepak Lal wrote a book, The Poverty of “Development Economics” to criticize a popular belief known as “Dirigiste Dogma” about third world development. He said the dirigiste dogma is characterized by four essential elements.
4 essential elements of the dirigiste dogma by Deepak Lal
- Markets need to be supplanted and not merely supplemented by various forms of direct government control.
- Orthodox microeconomics concerned with the allocation of given resources is of minor importance when designing policy in developing economies. Rather policy should be concerned with designing and implementing a broad “strategy” of development.
- That the arguments for free trade are not valid for developing countries – justifying restrictions on trade and international payments.
- Massive and continuing governmental intervention is required to redistribute assets and manipulate prices in order to alleviate poverty and improve income distribution
- The practice of dirigism is believed to prevent market failures and inefficiencies in production.
- Dirigisme allows for a more efficient allocation of resources as the government would make better decisions without bias. It allows for inclusiveness in the allocation of resources. This in turn favors the general society compared to capitalism which focuses on profit-making for the capitalist.
- It can increase employment opportunities and improve wages; Dirigism can also reduce poverty rates by providing people with access to essential goods and services, and providing interest-free loans to encourage or stimulate the creation of small and medium enterprises.
- Lack of competition because the government-owned and controls most sectors; this leads to low productivity
- Dirigisme leads to poor economic results
- It can lead to a lot of bureaucracy. This is because there needs to be a system in place for tracking and overseeing what is being done; making it time-consuming and difficult to manage. It is like a sole proprietor controlling a corporation. The government cannot monitor every aspect of the economy.
- It can stifle innovation and creativity. Because you may have innovative ideas but cannot implement it unless you are one of the state technocrats (who are involved in decision-making). The government may be unwilling or unable to invest in new industries, which can limit economic growth.
- This type of system can also create barriers to entry for new businesses, which can result in a decline in innovation and economic growth.
- When the government controls too much of the economy, it can lead to corruption and favoritism.
- In some cases, the government may choose to invest in certain companies over others, which can cause a market monopoly and unfair competition.
Examples of dirigiste countries
- Hong Kong
- South Korea
The above are some examples of dirigistes countries. Below is a table that outlines some characteristics of dirigisme that are practiced in some of these countries.
|Dirigiste countries||State-owned businesses||Economic Control||Price control||Investments|
|France||EDF, Air France, SNCF||Labor conditions and wages are highly regulated.||–||The government owns shares in many corporations across different sectors.|
|Nigeria||Railway corporation, Water board,||Subsidizes petrol, and provides funding to businesses through BOI, BOA, etc.||Controls fuel price,||Invested in Dangote Refinery|
|China||Most financial institutions are owned and controlled by the government||A highly regulated economy; provides subsidies||Price control in many aspects of the economy such as food, fuel,||Offers investment-promotion incentives to investors|
|Singapore||Singapore Airlines, SingTel||Subsidized housing, public transportation, and education.||The government controls the prices on which private investors based business calculations and investment decisions.||Temasek Holdings owns majority shares in many companies across different sectors such as Singapore Airlines, MediaCorp, and SingTel.|
In France’s dirigiste state, the government-owned some businesses such as SNCF railway company, EDF electricity utility company, Air France, etc. The government also provides subsidies and assistance to state-owned businesses.
In Nigeria, the government subsidizes petrol, owns the railway corporation, and provides funding to some businesses (through the Bank of Industry). Nigeria as a dirigiste state controls the economy by increasing tariffs on some goods and an outright ban on some imported goods to encourage domestic production, e.g rice. Teaching hospitals are owned by the government, NNPC was a state-owned oil corporation before it was privatized in July 2022.
Laissez faire vs dirigisme
In laissez-faire capitalism, the government does not interfere with the economy. This means that businesses are free to operate as they see fit; whereas in dirigisme the government gives the directive, controls the economy, and can own businesses.
Additionally, dirigisme systems can help struggling businesses overcome obstacles by providing them with financial assistance.; this privilege is absent in a laissez-faire system.
Dirigisme vs socialism
- Dirigisme is more of a type of economic management that typically focuses on the efficiency of the economy while socialism is an economic system that aims to achieve fairness.
- Dirigisme is based on the belief that the government should be in charge of allocating resources to ensure the best outcomes for the country. This contrasts with socialism, which is based on the belief that the government should provide everyone with the same amount of resources regardless of their individual needs.
- Another key difference is that dirigisme is more lenient with regard to market forces than socialism. This means that the government can intervene in the economy if necessary to promote stability or growth.
- Dirigism is more focused on the individual than socialism is, and it emphasizes efficiency over social justice. This makes dirigisme a better choice for countries that are struggling economically.
What is the meaning of dirigisme?
Dirigisme is a French term that refers to the management style of authoritarian governments. It is used to describe regimes in which the government exercises tight control over economic, social, and political affairs.