NS4301 Summer Term 2015

Developmental State

Overview I

• In Africa, increased interest in becoming developmental states (DS)

• DS intervenes proactively to guide national economic development and mobilize resources efficiently to meet social and economic needs of its population

• Concept not new

• Market-led economic growth lead accompanied by rising inequalities and vulnerabilities has encouraged new interest in it

• Many African countries looking to East Asia for ways of replicating their growth experience

• At core of DS lies a highly competent (technocratic) bureaucratic agency with close links to – but a high degree of autonomy from – both government and business

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Overview II

• This institutional structure enables the state to formulate and implement pro-developmental policies and structural changes

• In the wider national interest and

• Within a “planned capitalist” framework

• In contrast with socialist states the objective is leverage, rather than supplant market forces in support of growth and development

• DS gains legitimacy through its ability to promote and sustain economic and social development in a way that benefits all sections of society

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Developmental State I

Industrialization strategy

•In practical terms, the original East Asian DS strategies relied on their ability to

• Attract investment, both domestic and foreign

• Channel resources into industries deemed essential for national growth and development

•Beyond the identification of winners (and losers) this industrialization strategy embodied a two-stage process

• It provided a policy environment favorable to import substitution

• Resisting vested interests and eliminating rent seeking opportunities it encouraged the protected infant interest on the path towards large scale export orientation and international competitiveness

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Developmental State II

• In Japan, the Ministry of International Trade and Industry (MITI) working with the Ministry of Finance exhibited the requisite institutional capacity and autonomy to provide effective leadership

• MITI employed outstanding staff

• Its officials resisted special interests within the political leadership

• It also enjoyed corporatist-style relationships with big business

• enabling it to influence investment decisions, but without being “captured” by business interests

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Developmental State III

• These circumstances facilitated the implementation of directive policies including

• The mobilization of domestic savings to provide subsidized credit to favored enterprises or

• Selective allocation of scarce foreign exchange

• Led to a unprecedented industrialization drive with high levels of new jobs

• In effect the state shared with private industry the risks inherent in the needed large-scale capital investments by protecting them for a limited period against potential competitors.

• Similar processes drove the expansion of the East Asian “tiger” economies.

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Developmental State IV• The institutional elements of the DS concept are not

unique.

• Asian tigers have implemented similar strategies to those followed by countries recording swift growth in the 19th and early 20th centuries, including the developemtn of:

• Capacity to create an impartial civil service, based on qualification and competence, and independedt of traditional elites and their associated kinship, clan or other vested interest

• An environment conducive to entrepreneurial initiative, including reform of feudal land tenure systems and loosening of “guild”-type restrictions on occupation access

• Development of a broad human capital base through sustained and effective investment in education and technical skills

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Developmental State V

• Evidence from successful economies indicates these elements collectively created a common – “social capability” for promoting

• Modern technologies,

• Capital accumulation,

• Structural change, and

• Economic growth

• This capability was instrumental in enabling “late developers” to catch up with, and even surpass their more advanced contemporaries

• A similar social capability was present in greater or lesser measure in each of the successful East Asian economies – it enabled the emergence of the DS

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Developmental State VI

Recent Difficulties

•In recent decades a number of developing countries in Africa, Asia and Latin America have sought to be DS

•However, typically they have exhibited problematic characteristics:

• Instead of being a temporary phase, ISI policies have become longer term feature in many economies – providing support for extremely inefficient firms – as well as generating rent-seeking and corruption

• Even when staffed by competent officials – agencies have lacked autonomy being hostage to political interference and or capture by business interests

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Developmental State VII

• Rather than showing real commitment to role and expansion of the private sector

• Official attitudes often specious and outright hostile

• Often accompanied by a general reluctance to loosen many constraints on entrepreneurial activities.

• Whatever the reason, few modern developing countries have successfully emulated the “tigers” by combining

• Rapid and diversified growth of at least 8-10 sustained over at least a decade accompanied by

• Widely shared wealth creation

• Real expansion of the human capital base and

• Diminishing incidence of poverty.

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Developmental State VIII

DS in Africa

•Botswana often described as a DS

•Country has achieved an unprecedented growth and significant social progress with little corruption

•However has led neither to

• structural diversification away from natural resource dependency, nor

• To the emergence of a vibrant technologically advanced and highly productive private sector

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Developmental State IX

South Africa

•Government asserts it is building a DS

•Has made substantial progress with social services since end of Apartheid

•However country’s strong planning capacity not matched with policy implementation

•Not clear that the government’s faith in state-led action will best enable the country to address:

• Low long term growth rates

• Corruption

• High structural unemployment levels

• Inadequate human capital base and

• Persistent social inequalities 12

Developmental State X

Assessment

•Contemporary examples indicate states throughout the world becoming more involved with implementing strategies for economic growth

•In this contest ideal DSs are increasingly difficult to single out

•Claims to represent one respond more to political considerations of individual governments than to an identifiable group of policies setting them apart.

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