The paper discusses the roles of markets and states in the spirit of Adam Smith and Gunnar Myrdal. Reviewing Myrdal’s contribution to this problem frequent misunderstandings of his ideas are corrected. Distinctions important for understanding the roles of market and state blurred by neoclassical resurgence are clarified. The need for researching the transition to the right type of state intervention and for normative political economy is emphasised. The present combination of pricism, market-orientation and state minimalism by donor conditionality, a lynchpin of structural adjustment, is challenged in favour of a more realistic approach.
