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Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 5.1.1 The state as a system, which defines the state, its parts and their relationships, and some ways to classify states
Section 5.1.2 Origins, legitimacy and power of states, which explains how states came about, how they gain legitimacy and maintain power
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.3 Systems diagrams and models, which explains the systems thinking in some familiar information tools as well as the symbols used to represent parts/wholes, relationships and perspectives.
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems.
Learning objectives:
explain various functions of the state in three categories: providing essential goods and services, safeguarding individuals and society, and stabilising and guiding economic change
In the early 2000s, healthcare in Rwanda was hard to access, especially in rural areas. Many families couldn’t afford treatment, and disease was common. To change this, the government started Mutuelle de Santé, a community health insurance system. People pay small amounts, and the state helps those who can’t pay. This made healthcare available to everyone.
The results are impressive. Life expectancy rose from 48 to over 68 years. Child deaths dropped by 80%. Rwanda now has one of Africa’s strongest healthcare systems. This shows how bold state action can improve lives and build healthier communities.
Figure 1. Butaro Hospital at Burera, Northern Province, Rwanda
(Credit: François Terrier , CC BY 2.0)
How does the state take on such large-scale responsibilities like health care? What makes the state different from households, markets, or commons is its unique power to make laws, raise taxes, and enforce decisions for the whole population.
The state has three overlapping roles or functions (Figure 2):
creating conditions for households, markets, and commons to function
safeguarding individuals and society
stabilising and guiding economic change
These state roles vary depending on a people’s history, culture, power relations, and access to resources.
Figure 2. Three broad and overlapping roles or functions of the state
How does the state create conditions for other institutions to function?
How does the state create conditions for other institutions to function?
Markets, households, and commons depend on well-functioning social and ecological systems. States have broad powers to create conditions for people to thrive, as household members, community participants, workers, consumers and stewards of Earth systems. The state can help by offering public services and building infrastructure. This allows people to thrive, take part in society, and help shape the future.
Protecting and regenerating Earth systems
Protecting and regenerating Earth systems
The state helps protect and regenerate nature. Damaged Earth systems like forests, water, and climate make it harder for societies to meet their needs (Subtopic 1.2). The state can go beyond harm reduction by restoring ecosystems. Costa Rica is one example. After facing severe deforestation, it banned forest clearing and paid communities to restore forests. Forest cover doubled (Figure 3) while supporting people’s livelihoods.
Some states strengthen ecosystems by giving nature legal personhood. This gives legal rights to rivers or forests, inspired by Indigenous views that see no distinction between humans and the rest of nature (Section 1.2.1). In New Zealand, the Whanganui River (Figure 4) now has these rights, allowing people to defend it in court.
Figure 3. Monteverde Cloud Forest Biological Reserve in Monteverde, Costa Rica
Figure 4. The Whanganui River in New Zealand, the first river to be granted legal personhood
(Credit: James Shook CC BY 2.5)
Writing the rules for exchange
Writing the rules for exchange
Markets depend on state-backed laws. Property laws let people own and trade goods. Contract laws help strangers build trust to make exchanges. Without these laws, markets wouldn’t work (Section 3.2.3).
Commons need legal protection too. In Mexico, legally-recognised community landholdings called ejidos give local communities the right to manage forests and farms (Section 4.2.2). But many commons are still unprotected and face threats like enclosure (Subtopic 4.3.2).
Households also rely on law. Marriage, inheritance, and labour laws shape family life. Parental leave laws and caregiving subsidies help families balance paid work and household care (Section 2.4.4).
Figure 5. Laws give people confidence in markets where they might not know the producers, like this grocery store.
(Credit: Kham Tran, CC BY-SA 3.0)
Providing essential goods and services
Providing essential goods and services
States also support conditions for economic relationships through providing essential public goods and services that support people’s relationships. Big projects like railways (Figure 6) need planning, funding, and land. States can manage these. They improve transport, support trade, and connect people to services. States can also support commons by backing community-led infrastructure (Section 4.4.3). Some cities fund local energy cooperatives or let people manage unused public buildings, like in Barcelona.
Figure 6. Gotthard Tunnel in Switzerland, the kind of large-scale project that states are well placed to implement.
(Credit: Pechristener, Pechristener, CC BY-SA 2.0)
States invest not just in infrastructure, but also in people. Public services like health and education support well-being and participation in society. Rwanda’s health system, Mutuelle de Santé, improved lives by giving everyone access to care. Finland offers free schooling to all, from primary to university. It also invests in libraries (Figure 7), teacher training, and meals. These services help build strong, fair, and skilled communities that support households, markets, and commons.
How does the state safeguard individuals and society?
How does the state safeguard individuals and society?
A well-functioning state protects individuals and communities from harms.
Ensuring safety and security
Ensuring safety and security
One role is safety. States use police, courts, and the military to keep people safe. In Japan, low crime rates are helped by community-based policing, which builds trust (Figure 8). A safe society allows households, commons, and markets to function without fear, ensures that people focus on positive relationships and shared goals.
Figure 8. A Japanese police officer on a bicycle.
(Credit: Jonathan Fong, CC BY-NC-ND 2.0)
Protecting public health
Protecting public health
Another state role is public health. Without rules, businesses may harm people or nature to cut costs, using unsafe ingredients, polluting rivers or providing unsafe working conditions. States set rules, called regulations, to protect people’s health and ecosystems. The 2013 Rana Plaza collapse in Bangladesh (Figure 9) showed why safety rules matter. Afterward, the state improved building safety laws.
States also act during health crises. During COVID-19, Canada and other countries enforced public health rules and funded vaccines. States can do what households, markets or commoners cannot do on their own.
Figure 9. The Rana Plaza garment factory collapse in 2013 spurred greater state action on building safety in Bangladesh.
(Credit: Sharat Chowdhury, CC BY 2.5)
Defending fundamental rights
Defending fundamental rights
States also protect fundamental rights like free speech, equal treatment, and freedom from discrimination. For example, in South Africa, courts have defended LGBTQ+ rights. These protections ensure that individuals and communities can participate fully in society and the economy, strengthening social cohesion and trust.
Balancing power of economic stakeholders
Balancing power of economic stakeholders
Big companies or wealthy individuals may gain too much power to shape economic relationships. States use antitrust laws to limit business power. These laws may ban price fixing or mergers that reduce competition (Section 3.2.4). For example, the USA and EU have challenged the power of tech giants like Google and Amazon in courts.
States also protect workers and consumers from powerful businesses. Laws on minimum wage, safe workplaces, and union rights (Figure 10) help balance worker-employer power. Consumer laws ensure products are safe and returnable.
Figure 10. Starbucks workers have gone on strike to protest anti-union efforts of the company. Their right to strike is protected by the state.
(Credit: Elliot Stoller, CC BY SA 2.0)
How does the state stabilise and guide economic change?
How does the state stabilise and guide economic change?
Stable economies let people plan their lives, but states must also help economies adapt to change.
Promoting economic stability
Promoting economic stability
A stable economy is one where social, ecological and economic conditions and relationships are predictable, making it easier to plan. Stable economies have job opportunities, social security protections, essential services, and infrastructure. Power and economic benefits are fairly distributed. Economic stability also depends on understanding our dependence on Earth systems and protecting them.
States gather data on jobs, income, pollution, and more to track conditions (Subtopic 5.3 and Subtopic 5.4). They respond by adjusting laws, investing, or taxing. These policies and actions help keep the economy and society stable. One way is through progressive taxation, where people with higher incomes pay more tax. This prevents wealth from piling up in the hands of a few, the ‘success-to-the-successful’ system trap in Section S.9). Progressive taxation reduces economic inequalities, which reduces social tensions (Figure 11).
Figure 11. More progressive taxation will lower net incomes (after tax), slowing wealth accumulation and economic inequality.
(Note: the + symbol indicates a direct relationship, and - symbols indicates an inverse relationship)
States may also need to take action during crises, such as economic shocks or pandemics. Their support helps economic relationships to continue and recover after the shock. During the COVID-19 pandemic, many states gave emergency money to families and businesses to keep local economies functioning during lock-downs. States are an important shock absorber in disruptive times.
Leading and coordinating big changes
Leading and coordinating big changes
Some challenges are too big for individuals or businesses alone. The state can take on a large-scale mission, like energy transformation (Section 5.4.6 - link coming soon), by mobilising resources, coordinating long-term plans, and investing in new systems and attracting businesses to join in (Section 5.1.6).
China has been a global leader in renewable energy because of strong state support. In 2024, China’s installed solar capacity surged by 45.2%, reaching 890 million kilowatts (kW), nearly triple the total solar capacity of the United States and about 40% of the global total capacity. Wind energy also grew. Government funding and planning made this possible.
Figure 12. China leads the world in solar energy production, led by strong state policies and funding.
(Credit: Jiri Rezac, CC BY-NC-SA 2.0)
These examples show the power of the state to shape society. From building infrastructure and protecting rights to leading large-scale transitions, the state supports the systems that households, markets, and commons depend on. States that use this power to meet public needs can build trust and stability. Those that don’t risk losing the support they rely on.
Activity 5.1.3
Activity 5.1.3
Concept: Systems
Skills: Research (information literacy)
Time: varies depending on the option
Type: Individual, pairs or small group
Option 1: Meeting human needs within planetary boundaries
Time: 20-30 minutes, depending on group size for sharing and whether you watch the Doughnut video or the students need reminding about the Doughnut model
Note: To do this activity, it may be helpful to have students learn a little more about the Doughnut Economics model, Section 1.3.4. Alternatively, they may be able to learn what they need from this short TED-Ed video about the Doughnut model.
The Doughnut Economics model (Figure 13) proposes that to reach the ‘safe and just’ space for humanity we need to ensure that everyone’s basic needs are met, the ‘social foundation’ in the centre, while not overshooting planetary boundaries, the ‘ecological ceiling’.
Select one element of the social foundation and one element of the ecological ceiling.
Consider the relationship between the two elements you selected. How does one influence the other?
Considering what you have learned in this section, explain what role the state might have for the elements you chose.
Share your ideas with a partner or in a small group with others who have thought about different elements.
Figure 13. The Doughnut Economics model showing the “safe and just space for humanity” where human needs are met within planetary boundaries
(Credit: Raworth and Guthier CC-BY-SA 4.0)
Option 2: How does your state support households?
Time: 30 minutes
Your state may have a range of strategies to support households, commonly referred to as social welfare or social services.
Do some quick research on the internet to find out how your state supports households (with other students and/or your teacher, brainstorm some search words, like health care, child care, social welfare to help with the search OR
Ask some adults in your school or community what kinds of support they get, or could get, to support meeting human needs in their households.
Do you (or others you talked to) think that the level of state support is adequate to support households? What other strategies are being suggested in the country, or region, where you live to strengthen households?
Option 3: Applying your understanding to current events
Time: 30 minutes
Access a news story – Use a reliable news website, newspaper, or other media source to find a recent local news story that involves some kind of business/market activity. This could be about businesses, trade, new technologies, employment, regulations affecting industries, or something else.
Identify the state's role – Think about the different functions of the state described in this section. Choose two ways the state likely contributed to the market activity in your news story.
Explain your findings – Write a short explanation (about 3-4 sentences) for each way that the state supported or shaped the business/market activity. Be specific about how the state’s involvement connects to the story you chose. Share your work with a partner or in a small group.
Option 4: Thinking in systems
Time: 40 minutes, if students consider perspectives, it will take longer than one period
Note: This activity option requires understanding of DSRP framework from Section S.2 and Section S.3.
This section describes the various functions of the state. You can use the distinctions, systems, relationships and perspectives (DSRP) framework to think more deeply about these functions.
Distinctions (thing/other): Which three functions does the text distinguish? Hint: these are the three main headings, expressed as questions.
Systems (whole/parts): The text presents those distinctions as wholes and identifies further parts within them.
What are the parts in each whole?
How would these wholes and parts be represented in a systems diagram? Draw this on paper or a digital document if you can.
Relationships (action/reaction): The various functions of the state are not isolated. What relationships are there between the functions?
(Challenging!) Perspectives (point/view): We can use these functions as points of view to consider an idea, thing, or problem.
Consider the issue of artificial intelligence (AI).
Choose one of the three broad functions of the state (the whole and its parts) and consider AI from that point of view. You may need to find some information online to help generate ideas.
How would this point of view distinguish parts of AI? It might be difficult to do this at the level of the broad category, so you might have to consider a smaller function like ‘writing the rules for exchange’.
How would this point of view understand the parts and wholes of AI?
How would this point of view understand the relationships between the parts and wholes of AI?
From this point of view, what kinds of state actions might you recommend with regard to AI and why?
Ideas for longer activities and projects are listed in Subtopic 5.5
Checking for understanding
Checking for understanding
Coming soon!
Further exploration
Further exploration
The Role of the State - This video lecture of economist Ha-Joon Chang for the Institute for New Economic Thinking (INET) explains how the state can guide economic development. Chang uses real examples to show that markets often need strong government. Note: the subtitles of the video do not always accurately transcribe Chang’s strong accented English. Difficulty level: medium
The River is Me, a short (17 min) documentary about how the Whanganui River in New Zealand has been granted legal personhood, in keeping with the Maori worldview that the river is a living entity. Difficulty level: easy.
Rana Plaza Collapse Documentary: The Deadly Cost of Fashion - this ca. 5 minute video from The New York Times tells the story of the 2013 Rana Plaza factory collapse in Bangladesh. It explores the risks behind fast fashion and the need for stronger safety laws. Difficulty level: easy
23 Things They Don’t Tell You About Capitalism - a book full of economic insights by economist Ha-Joon Chang, with a few chapters particularly relevant to state functions:
Thing 12 Governments can pick winners
Thing 19 Despite the fall of communism, we are still living in planned economies
Thing 21 Big government makes people more open to change
Sources
Sources
Bolhuis, W. (2023, November 30). Beleidseconomen moeten weten wat transitiefalen is. ESB. https://esb.nu/beleidseconomen-moeten-weten-wat-transitiefalen-is/
Chang, H.-J. (2002). Kicking away the ladder: Development strategy in historical perspective. Anthem Press.
Chang, H. (2010). 23 Things They Don't Tell You About Capitalism. United Kingdom: Penguin Books Limited.
Constitutional Court of South Africa. (n.d.). Gay and lesbian rights. https://www.concourt.org.za/index.php/gay-and-lesbian-rights
Mazzucato, M. (2018). The Entrepreneurial State: Debunking Public Vs. Private Sector Myths. United Kingdom: Penguin Books Limited.
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House.
Reardon, J. (2018). Introducing a new economics: Pluralist, sustainable, & progressive. London: Pluto Press.
Reuters. (2025, January 21). China's solar, wind power installations soared to record in 2024. https://www.reuters.com/business/energy/chinas-solar-wind-power-installed-capacity-soars-2024-2025-01-21/
van Staveren, I. (2015). Economics after the crisis: An introduction to economics from a pluralist and global perspective. Routledge.
Terminology (in order of appearance)
Terminology (in order of appearance)
Coming soon!
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