In Indonesia there is a lack of well-informed debate on the respective roles of the private and public sectors in the economy. Instead, the discussion tends to be dominated by the twin extreme views that development would not occur if the government did not make it happen, and that neo-classical economists (or ‘neo-liberals’) argue for purely laissez-faire economic policies in which there is no role for government. No doubt similar views are widely held in other countries, both developing and developed.

In this seminar I argue that successful economic development depends on an appropriate delineation of the roles of the public and private sectors so as to ensure that the public sector plays a complementary, rather than a competing, role, restricting itself to things the private sector cannot do, or cannot do well. The first category includes the provision of protection for citizens against a range of both man-made and natural threats, while the second encompasses modification of activities that impose costs on third parties. The idea of complementary action also extends to infrastructure services, which can readily be supplied by the private sector, subject to the exercise of governments’ power to resume the land needed for this purpose. The interests of the poor are most effectively furthered by a public sector with this focus on complementarity.