Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
1 The many channels of the relationships between state intervention and growth: can high-growth developing countries be examples for poorer countries? Alice N. Sindzingre Research Fellow, National Centre for Scientific Research (CNRS, Paris)-University Paris-10-EconomiX; Visiting Lecturer, School of Oriental and African Studies (SOAS, University of London), department of economics; Associate Researcher, CEAN (Centre d’Etude d’Afrique Noire, Institut d’Etudes Politiques, Bordeaux); Email: [email protected] International Political Science Association 21st World Congress of Political Science, Santiago (Chile), 12-16 July 2009 Research Committee RC04: Public Bureaucracies in Developing Societies. Topic 3: ‘Strengthening State Capacity’ Abstract Since the 1980s, the reforms of the state and of government institutions in developing countries have had the objectives of reducing the intervention of the state in the economy – reducing its size, the scope of its policies and government spending, reforming taxation, and limiting government redistribution and financing. Reforms also aimed at enhancing incentives in the civil service, improving accountability and [since the late 1990s controlling corruption. These reforms were not only focused on public policies and institutions, but also on markets: they also consisted in reforms liberalising the economy, promoting privatisation, deregulating trade and lifting barriers to it. This has been the case for the reforms recommended by the international financial institutions to low-income countries, e.g., in Sub-Saharan Africa. These reforms were, and arguably continue to be, grounded on economic theories that consider that ‘big government’ is detrimental to growth and that there is a positive correlation between liberalisation and the minimising of state intervention in an economy on the one hand, and variables such as growth or the welfare of the society, on the other. These theories, however, remain debated, both in their conclusions and methodologies. Moreover, empirical evidence does not always confirm the effectiveness of these reforms and the relevance of the associated theories. Indeed, most countries that exhibited the highest growth rates since the 1960s (e.g. South Korea, then China) relied on strong states. Even if the functioning of markets was liberalised, governments intervened in the economy: but they did this in original ways, such as fostering the effectiveness of bureaucracy, investment in education, selective support to particular economic sectors, industrial and export-oriented policies. The instruments were less linked to taxation - as they had been in European welfare states - than credible and growthoriented policies that were often helped by specific types of political regimes – authoritarian – and rulers who used growth as a political tool enhancing their legitimacy, which neutralised the distortions created by cronyism. In contrast, in other parts of the world, such as the Sub-Saharan African low-income countries, governments were also often authoritarian, but sometimes implemented policies that were ‘anti-developmental’ and allowed for bureaucracies that were inefficient, inexistent or plagued by patrimonialism, coupled with economic regimes based on extraction and rents, high inequality and very uneven public redistribution. In this context, the reforms of the international financial institutions that recommended a reduction of state intervention had mixed effects: they may have had the positive effects of reducing rent-seeking in some cases, but further weakened state capacity in others, and in particular the 2 capacity to implement the appropriate policies, i.e. oriented towards growth, industrialisation and manufactured exports as in the high-growth Asian countries. This shows the interest of an analysis and comparison of state capacity in developing countries. The paper thus explores the state institutions and policies of countries that enjoyed spectacular growth in Asia, in particular their modes of state intervention, and, in contrasting them with those prevailing in the low-income countries that are caught in poverty traps, assesses the lessons that can be drawn from them. Introduction1 Since the 1980s, the reforms of the state and of government institutions in developing countries have had the objectives of reducing the intervention of the state in the economy – reducing its size, the scope of its policies and government spending, reforming taxation, and limiting government redistribution and financing. Reforms also aimed at enhancing incentives in the civil service, improving accountability and controlling corruption. These reforms were not only focused on public policies and institutions, but also on markets: they also consisted in reforms liberalising the economy, promoting privatisation, freer trade and trade openness. This has been the case for the reforms recommended by the international financial institutions to lowincome countries, e.g., in Sub-Saharan Africa. These reforms were, and still are, grounded on economic theories that consider that ‘big government’ is detrimental to growth and that there is a positive correlation between liberalisation and the minimising of state intervention in an economy on the one hand, and variables such as growth or the welfare of the society, on the other. These theories, however, remain debated, both in their conclusions and methodologies. Moreover, empirical evidence does not always confirm the effectiveness of these reforms and the relevance of the associated theories. Indeed, most countries that exhibited the highest growth rates since the 1960s (e.g. South Korea, then China) relied on strong states. Even if the functioning of markets was liberalised, governments intervened in the economy: but they did this in original ways, such as fostering the effectiveness of bureaucracy, investment in education, selective support to particular economic sectors, industrial and export-oriented policies. The instruments were less linked to taxation - as they had been in European welfare states - than credible and growth-oriented policies that were often helped by specific types of political regimes – authoritarian – and rulers who used growth as a political tool enhancing their legitimacy, which neutralised the distortions created by cronyism. In contrast, in other parts of the world, such as the Sub-Saharan African low-income countries, governments were also often authoritarian, but sometimes implemented policies that were ‘anti-developmental’ and allowed for bureaucracies that were inefficient, inexistent or plagued by patrimonialism, coupled with economic regimes based on extraction and rents, high inequality and very uneven public redistribution. In this context, the reforms of the international financial institutions that recommended a reduction of state intervention had mixed effects: they may have had the positive effects 1 The author is grateful to Raymond Toye for his very insightful comments on this paper, though the usual caveat applies. 3 of reducing rent-seeking in some cases, but further weakened state capacity in others, and in particular the capacity of implementing the appropriate policies, i.e. oriented towards growth, industrialisation and manufactured exports as in the high-growth Asian countries. This shows the interest of an analysis and comparison of state capacity in developing countries. The paper thus explores the state institutions and policies of countries that enjoyed spectacular growth in Asia, in particular their modes of state intervention. In contrasting them with those prevailing in the low-income countries that are caught in poverty traps, it assesses the lessons that can be drawn from them. The paper is thus structured as follows. It firstly analyses the evolution of the thinking regarding the role of the state in development economics; it assesses the paradigm that prevailed in developing countries from the 1980s until the 2000s, which viewed ‘big government’ as a cause of economic failure. Secondly, it presents an alternative model of the relationships between state intervention and growth, which has been provided by the trajectories of the so-called Asian ‘developmental’ states (e.g., South Korea, Taiwan). The development paths of these states reveal that government intervention and a series of active public policies – regarding taxation, trade, social issues and the like – may have a positive impact on growth. Thirdly, these models of state and public policies are contrasted with those which prevailed in low-income countries in other parts of the world, via the example of Sub-Saharan African countries after independence in the 1960s: while there are commonalities, many dimensions of government intervention in Sub-Saharan Africa sharply differed from those in East Asia, which has been compounded by different economic initial conditions, market structures and political contexts. These various dimensions explain the lack of positive impact of state intervention on growth in Sub-Saharan Africa, or at least its mixed effects. The paper thus shows that it is not state intervention per se that has a detrimental effect on growth: certain features of the state and public policies, and in certain historical, economic and political contexts, may have a negative impact, while this impact, in other contexts, is positive. 1. The paradigm prevailing in developing countries from the 1980s until the 2000s: ‘big government’ as a cause of economic failure The evolution of thinking about the state in development economics after WWII The assessment of the role of the state in developing countries cannot be understood outside the broader context of the evolution of development economics since WWII, which witnessed many changes, especially regarding the conception of the role of the state and its optimal modes of intervention. As shown by Adelman (2000a), a topic that has been subject to the most crucial changes has been the model of the desirable role of government in the economy, e.g. the degree and form of state intervention, the nature of government-market relations and the associated policy prescriptions. The ‘founding fathers’ of development economics at the time of WWII argued that there is scope for choice in institutions, policies and their sequencing, and these choices generated in turn 4 the initial conditions for subsequent development: there are alternative trajectories in development. The role of governments in economic development has contrasted among countries. In some East Asian countries, governments played an ‘entrepreneurial’ role, which appeared to lead to successful economic outcomes. This has been the case of the latecomers to the Industrial Revolution, also coined as ‘developmental states’, i.e. Japan, South Korea and Taiwan. These countries grounded their growth on policies that mixed government and market and adapted the further they grew. They showed that governments may promote industrialisation via targeted policies (incentives, subsidies, tariffs, policies towards labour markets, technology, etc.). This period was followed by a period that witnessed the progressive dominance of the neoclassical paradigm, which in development economics conveyed several fallacies that still are at the core of standard theories in the 2000s, in particular considering that there is a single cause to growth (Adelman, 2001). Adelman underscores that there are many causes of growth or stagnation, and that there is no single criterion to evaluate development performance: development is a nonlinear and path-dependent process, which involves shifting interactions, and thus changes in policies and institutions over time. Government as the prime mover, as the problem, as a provider of incentives and correcting market failures: three sharply different phases Adelman (2000b) thus distinguishes three phases in the thinking about the role of the state after WWII. In the first phase (1940-1979), the government has been viewed as a necessary prime mover: it must play an entrepreneurial role, it is a social welfare-guided arbiter among conflicting interests, it is needed to correct coordination failures in interdependent investments in industry and move the economy out of the low-level equilibrium trap. The intellectual roots of these views are the classical economists and their followers after the WWII: Arthur Lewis, Paul Rosenstein-Rodan, Ragnar Nurske, Hans Singer, Raul Prebisch, among others. In particular, Rosenstein-Rodan (1943) highlighted the importance of spillover effects, the possibility of coordination failures in developing countries and of poverty traps. These concepts may justify government intervention. They have come back at the forefront in modern development theory (Hoff, 2000). These theorists of the WWII period viewed growth as a process that requires systemic reallocation of production factors from a low-productivity sector (traditional) to a highproductivity sector, mostly industrial, with increasing returns. In contrast with the neoclassical framework that prevailed later, these theories considered that the reallocation of resources is hampered by technological and institutional rigidities - a view that is underlined both by classical and structuralist approaches. Here industrialisation is not driven by technical progress, and the fostering of demand cannot be left to the private sector alone: industrialisation had to be planned by the state. These arguments have underlain the concept of ‘big push’. This is confirmed by history (Adelman, 2000b). Government investment in infrastructure, human capital and industry has been historically essential to development, as have been trade policies and the promotion of technological dynamism. 5 The appropriate types of government included autonomy from pressures of elites, capacity and credibility - required for long term economic growth -, and adequate statecivil society relationships. For Adelman, opposing states and market is a recent notion, and historically, a key function of the state was to create well-functioning markets, i.e. providing the legal framework, standards, credit, infrastructure, and if necessary, being temporarily an entrepreneur of last resort. The second phase (1979 to about 1996) is the phase of ‘government as a problem’ (not the solution), with governments urged to remove price distortions, and the phase of the pre-eminence of the neoclassical paradigm. It witnessed major changes regarding the role of the state in development economics, in particular, in the 1980s, a marginalisation of Keynesianism’s impact on economic thought and policy-making of the 1930s-1940s. Government intervention was seen as ineffective (Toye, 1987). The state was viewed as predatory, inducing rent-seeking and corruption, and should be limited, as advocated by, e.g., Deepak Lal or Bela Balassa. For these economists, the anti-export bias of trade controls was the main cause of the balance of payments constraints on economic growth, and the ‘right system of incentives’ (i.e. governmental measures affecting the allocation of resources) was the most neutral in terms of discrimination among economic activities or foreign and domestic markets. Policy goals should be confined to ‘getting prices right’; government intervention is here unnecessary. The marketisation of goods, including public goods, makes development cost-effective and efficient (Adelman, 2001). In the field of foreign trade, neoclassical theorists are against controls: trade liberalisation is viewed as enough for triggering export-led economic growth, and international trade can be a substitute for low aggregate domestic demand. For example, controls over foreign trade such as international commodity agreements have to be removed. Official aid (government to government) is here said to maintain unproductive bureaucracies and crowd-out private sector investors: it is therefore appropriate to ‘exchange aid for policy reform’. From the 1980s onwards, this paradigm constituted the basis for the reform programmes of the International Financial Institutions (IFIs), the IMF and the World Bank. These reforms were synthesised in what has been coined as the ‘Washington consensus’ (Williamson, 1990), which recommended a list of 10 reforms: fiscal discipline; reordering public expenditure priorities; tax reform; liberalising interest rates; competitive exchange rates; trade liberalisation; liberalisation of inward foreign direct investment; privatisation; deregulation; and property rights. A third phase occurred in the 1990s, which witnessed a more balanced view of the state, following, among many factors, the failure of the implementation of the previous programmes in Latin America and in Sub-Saharan Africa (SSA), which questioned the underlying conception of the minimal state. Government action was again viewed as critical for triggering growth, and markets and states as complementary: markets may be inefficient in presence of externalities (e.g., leading to oligopolies); states may be inefficient in terms of allocation of resources, but they may be better than markets in addressing externalities and correcting coordination failures that stem from the existence of externalities, economies of scale and problems of collective action. This has led to a conception of the role of the state coined as the ‘Post-Washington consensus’ (Stiglitz, 1997), which became influential within the World Bank in the late 6 1990s, Joseph Stiglitz being Chief Economist: the state was ‘rehabilitated’. A flagship publication expressing these views has been the World Bank World Development Report 1997 on the state in developing countries. In this theoretical approach, the state has a privileged role to play regarding the development of infrastructure - educational, technological, financial, physical, environmental, and social. For Stiglitz, the government has six key roles: promoting education, promoting technology, supporting the financial sector, investing in infrastructure, preventing environmental degradation, creating and maintaining a social safety net. For Stiglitz, market failures (such as information asymmetries or missing markets) are larger in developing countries, and capacities of government to correct them are weaker. These views were in line with the conceptions of the IMF regarding the ‘appropriate’ role of the state and public sector – which, in addition, are constrained by its legal mandate of monitoring the macro-financial aggregates of its member countries, especially fiscal balances, therefore public expenditures and the size of public sectors. Many reforms of the civil service were therefore implemented in the 1980s and 1990s in developing countries. The ‘first generation’ of reforms of the civil service promoted by the IMF in the 1980s was focused on macroeconomic stabilisation and the control of fiscal aggregates (public spending). The failure of these reforms in several developing countries led the IMF to recommend in the 1990s a ‘second generation of reforms’ of the civil service (Tanzi, 2000). This ‘second generation’ of reforms was inspired by the same theories of information asymmetries and incentives mentioned above, together with theories of New Public Management, which, e.g., advocated the rewarding of civil servants on merit. Since the late 1990s, for the IMF, reforms must be focused on ‘rules’, ‘institutions’ and a ‘high-quality public sector’. The limitations of the theories of a role of the state confined to ‘core functions’ However, several limitations are common to the ‘Washington Consensus’ and the ‘PostWashington Consensus’. The latter approach, as summarised in the World Development Report 1997 on the “role of the state”, entails several problems, as it ignores the weight of history and politics, and the unique and ‘path dependent’ processes that underlie state formation and the microeconomic expectations of economic agents, in particular civil servants. The specificity of states and public institutions in regard to other institutions remain under-addressed (Sindzingre, 1998). In the ‘Post-Washington Consensus’, the functions of the state remain likewise limited. These core functions consist in providing macroeconomic stability to economic agents, providing regulation and improving regulatory policy: the state has a role to play as it provides incentives. The state may increase consumer orientation, monitor and reward performance, extend the scope of competition and privatising. In particular, both approaches under-theorise the nature of the state, especially the intrinsic political dimension of state formation and the power relationships, especially violence, which are at its core. For Tilly (1985), it is coercive exploitation that has underlain the creation of European states: war (or piracy, banditry) “makes states”; mercantile capitalism and state-making reinforced each other, pushed by the quest for an expansion of power and economies of scale, and state formation is based on tributes 7 and protection rents (e.g. on merchants), the main activities of a state being war-making, extraction, state-making, and protection. In addition, several theoretical studies supported a conception of the optimal functions and size of the governments that contrasts with the ‘Post-Washington consensus’, and demonstrated the economic benefits of ‘big government’ and the necessary role of the state. As shown by Rodrik (1998a), social conflicts and their management – whether successful or not – play a key role in transmitting the effects of external shocks on to economic performance. Here, governments have a key role in providing social insurance, and this role creates a complementarity between states and markets (Rodrik, 1997). Moreover, in the context of globalisation, Rodrik has also underscored that more open countries have bigger governments (Rodrik, 1998b). Similarly, using a sample of more than a hundred countries over the period 1970-1995, Garrett (2001) shows that high levels of trade are associated with high levels of government spending. However, for Garrett, this correlation does not confirm the compensation hypothesis that increasing globalization in recent years has prompted governments to expand the public economy. On the contrary, the fact that countries in which trade has expanded more quickly have experienced slower growth in public spending suggests that the efficiency constraints imposed by trade growth outweigh the political pressures for compensation that trade generates. On the other hand, Garrett underscores that capital mobility does not seem to have a significant impact on government spending. These theses were supported by the empirical evidence provided by the spectacular growth of Asian ‘developmental states’ from the 1960s onwards. The views on the minimal state, however, have remained resilient, beyond the theoretical arguments and empirical evidence of successes of different public policies as well as their failures after the 1980s, when they inspired the stabilisation and adjustment programmes in most developing countries. As highlighted by Paul Krugman2, they constitute an “anti-government ideology that dominates much U.S. political discussion, low taxes and a weak social safety net are essential to prosperity”. The huge bailouts backed by the state implemented by the US government in 2009 in order to cope with the 2008-2009 financial crisis suggest the possibility of a shift of the paradigm towards a fourth phase. The emergence of the concept of ‘state failure’ in the academic and policymakers literature In the 2000s, some states in developing countries have been analysed as ‘failed’ states, both in development economics and in the donors’ literature, within academia and the IFIs. These ‘failures’ of states in developing countries have been assessed ex post: states have been viewed as ‘failed’ not in the 1960s or the 1970s, when they were enjoying high growth rates, thanks among other determinants, to external causes - high commodity prices -, but after the occurrence of the fiscal crises, again due to external factors, i.e. the drop in the commodities prices and terms of trade the in the late 1970searly 1980s. These assessments of ‘state failures’ therefore resulted from the 2 The Comeback Continent, New York Times, 11 January 2008. 8 conjunction of several factors: objective economic facts (external shocks) and theoretical evolutions within development economics, especially changes in the conceptions of the ingredients of development, e.g. the efficiency of market forces. These changes have been reinforced by studies in political science and political economy on the state from the early-1980s onwards. Poor economic performance in developing countries has been increasingly explained by neopatrimonialism, predatory regimes, cronyism, nepotism, patronage, clientelism, kleptocracy, etc. Several economists after WWII also explained economic stagnation in developing countries by specific features of the state and political processes. Gunnar Myrdal thus elaborated the concept of ‘soft’ states and analysed their recurrence in developing countries (Myrdal, 1968), ‘soft states’ being political regimes that are “unwilling but not unable” to engage in long-term growth-enhancing policies, e.g., forced savings. Since the 2000s, the concept of ‘state failure’ has been pervasive in development economics and IFIs policy documents - ‘failed states’, ‘fragile states’, ‘collapsed’ states became the basis of policies for all donors, examples being Somalia or Zimbabwe3. Economic failure is explained by state failure, which is explained by characteristics of the state itself. The state is here the culprit - its ‘bloated’, ‘rentier’, ‘predatory’ bureaucracies -, a perspective that has been supported by the expansion after the 1970s of the theories of rent-seeking, public choice and rational choice. For the public choice theories, the state is mostly a bureaucracy where the only goal of individuals is to protect their interests before and against the interests of citizens. There are therefore very few functions which the state would be the only entity able to fulfil and that would justify its existence (Krueger, 1974; Bates, 1988). Similarly, many economies in the developing world are now analysed as ‘extractive economies’, i.e. a nexus of political regimes and economies based on extraction. These theories underscore the ‘predatory’ character of some states. Governments here do not rely on educated personnel, skills and human capital, but on the extraction of natural resources. They have no interests in economic development, and no incentives for fostering growth. Other theories elaborated the concept of ‘warlord economies’ that shape states affected by recurrent civil wars (Reno, 1998). The economic effects of predatory states may be serious, and these governments may be viewed as ‘antidevelopmental’ and based on pure predation (Acemoglu and Robinson, 2006). In development economics in the 1990s, theories of the ‘political economy of policy reform’ thus emphasised the endogenous character of public policies to economic and political contexts, in attempts of explaining the persistence of governments’ ‘bad policies’ in developing countries. Acemoglu and Robinson (2006) demonstrate the endogeneity of political and economic institutions that lead to stagnation: political attitudes are determined by economic incentives; the form of political and economic institutions results from conflict between groups that have diverging interests (the ‘elites’ and the ‘citizens’). These ‘bad’ policies do not appear to be associated with a given type of political regime, rely on redistributive transfers that do not aim at being efficient, and are locked in balances and status quo in the distribution of the political and economic power that elites want to maintain at any cost. Governments are 3 See Failing states on the brink, 24 June 2008, The Economist. 9 characterised by their inability to commit credibly. This inability to commit appears to be here a key determinant of the influence of public institutions and government behaviour on growth, as it refers to a government’s credibility. It is among the key findings of the 2004 Nobel Prizes Finn Kydland and Edward Prescott, who precisely defined credibility as this incapacity for a government to credibly commit. Acemoglu thus argues that the inherent problem of governments’ credibility is that there is no meta-level above government that has the coercive capacity to enforce government policies and promises. Other theories in the 1980s disagreed with these views of failures being those of states in developing countries. They argued that ‘failures’ were firstly the failures of reforms rather than those of states, e.g., failures of the reforms’ design, fallacies of the underlying theories and failure of the IFI stabilisation and structural adjustment programmes to adjust to the developing countries’ market structure. In these views, the IFI programmes of the 1970s and the 1980s have intensified economic instabilities and the microeconomic uncertainties that characterise low-income countries over the historical ‘longue durée’. Moreover, in the second decade of adjustment in the 1990s, the persistence of fiscal imbalances and hence the dependence on IFI lending have induced in developing countries a massive intrusion of donors within government decision-making and a multiplication of policy conditionalities. In addition, the requirement by the IFIs of the simultaneous implementation of economic reform and political reform appeared to have been detrimental to economic performance, with no clear economic benefit of the democratisations of the 1990s. The relationships between IFIs and governments have been described as a ‘ritual dance’ (Kahler, 1992), with endless conditionalities and hence resistance to reforms, and a ‘game’ subject to permanent negotiations, which has been coined as the ‘politics of non-reform’, or ‘politics of permanent crisis’ (Van de Walle, 2001). In the 1990s, theories of ‘state failure’ emphasised the impact of geographical and structural characteristics: states have been explained via, e.g., initial conditions and endogenous outcomes of geography and demography. ‘State failure’ is here its incapacity to provide public goods, e.g., law and order, contract enforcement or infrastructure. As shown by Herbst (2000), SSA is constrained by low demographic densities, which prevent the construction of state authority in a context of scattered populations. With abundant land, precolonial states were not determined by competition over land, power was not territorial, and exit options were always possible: states were therefore built through loyalties, shaped by the costs of expanding power and focused on centres rather than on boundaries. After independence, boundaries were set by the colonial powers, and political leaders were early affected by challengers and instability. Moreover, Herbst underscores that these problems were compounded by those of land tenure. The emphasis on initial conditions and the endogeneity between the state and institutions, e.g. inequality, in relation with geography is at the core of several analyses of development paths, e.g. the divergence between North and South America (Sokoloff and Engerman, 2000). 10 2. The relationships between state intervention and growth: the evidence from Asian ‘developmental’ states The concept of the ‘developmental state’ and the crucial role of public policies in East Asia Rodrik (1997) underscores that is impossible to understand the East Asian growth “miracle” without acknowledging the role that government policy played in stimulating private investment. The so-called ‘developmental states’ of East Asia have shown that states that are capable of intervening effectively in an economy. This intervention, however, does not mean that states would ‘own’ the economy, e.g. via nationalisation of the country’s wealth. It does not mean either that states heavily tax the economy and productive activities, income and wealth, or implement wide redistribution of these revenues, like, e.g., European welfare states, especially under the form of universal social protection. The concept of ‘developmental states’ is a seminal concept, which has been elaborated for explaining growth in East Asia late industrialisers - Japan, Korea and Taiwan (and later, Hong Kong and Singapore), despite the diversity of their industrial structures – e.g., small firms in Japan and Taiwan vs. large conglomerates in Korea (Johnson, 1982; White, 1988; Amsden, 1989; Wade, 1990; Sindzingre, 2004a for a review). Through an original mode of intervention, this concept confirmed the key role that was allocated to the state in development by theories after WWII), exploring the conditions and appropriate policies for taking off and sustained growth at early stages of development e.g. by Rosenstein-Rodan (1943) who emphasised the existence of spillovers, the importance of coordination for growth, the possibility of low equilibria and poverty traps (Hoff, 2000; Bardhan and Udry, 1999). A key lesson of developmental states is that growth may be an outcome of ‘heterodox’ policies and state intervention in the economy – and today the debate has extended to China and its public policies. Although government’s intervention varied from country to country, common features were active and targeted industrial policies, the creation of ‘distortions’, targeted taxation, trade protection, limitation of foreign shareholding, incentives for the banking sector and firm financing, training in technology, an emphasis on education, a technically competent bureaucracy, the capacity to build coalitions and cooperation among the various agents of an economy. They grounded their industrialisation on learning processes in order to industrialise and climb the technology ladder, as ‘entrepreneurial’ states (Wade, 2000). From the 1960s to 1980s there was a sharp increase in the contribution of manufacture to growth: in Korea from 14 to 30%; in Taiwan, industrialisation was driven by small and medium enterprises and moved from labour-intensive exports to high technology exports from the 1980s. A key issue is that state intervention and active industrial policies were oriented towards export performance, based on a model of growth based on export-led growth, but always conditional to growth: growth was a key aim. Developmental states have used heterodox economic policies, and even political rent-seeking - for the Korean chaebols (the large conglomerates) or the Japanese zaibatsu and keiretsu - but these public policies were tuned to sanctions provided by international markets, i.e. export performance: i.e., market-preserving regarding external markets, but market 11 ‘distortions’ at the domestic level. Growth of South Korea, for example, has been supported by state intervention that has not been market-preserving at the domestic level – such as, e.g., heavy intervention in tariffs and subsidies (e.g. subsidised interest rates). State-created rents were an instrument for industrial development, through a limited number of conglomerates (chaebols). Export led growth has been a model grounded on autonomy, even if Asian states are based on the model of export-led growth and strongly dependent the situation of the rest of the world: their growth stems from domestic autonomous policy decisions. Industrialisation strategies were characterised by long-term flexibility while relying on short-term, rigid, regulatory measures aimed at encouraging the strengthening of institutions: ‘flexible rigidities’ as coined by Dore (1986) for Japan. Developmental states questioned the neoclassical paradigm, that economic development is achieved through competition and liberalisation. The model of the developmental state is a challenge to the assumptions of neoclassical economics, e.g. market efficiency and minimal role of the state. Developmental states showed that ‘statism’ is not inherently rent-seeking. Developmental states were built on an economic complementarity between the state and the private sector, via credibility and reputationbuilding – credible state and policies, and virtuous cycles where growth and successful export-oriented strategies reinforce government credibility and thus investment. Once the state has achieved development, state intervention consists of directive policies, rather than directly investing in the economy (Huff et al., 2001). For Amsden (1997), production is a concept that has been neglected by the neoclassical literature in analysing the state’s role in economic development, and ‘market failures’ caused by state intervention are less relevant when the focus is on production and not on exchange. In addition, developmental states highlight the role of state intervention in financing industrialisation through the policy-based mobilisation of agricultural savings (Teranishi, 1997), in contrast with SSA and Latin America. The pattern and degree of intersectoral transfers of agricultural savings to industry has a profound influence on the process of industrialisation through their effects on political and macroeconomic stability. Teranishi shows that there were few differences between SSA, East Asia and Latin America in terms of taxation of agriculture, but there were large differences in terms of infrastructure investment in agriculture – more than policy-based resource shifts from agriculture. Developmental states showed that growth is a successful shift from agriculture to industry that is achieved via state intervention, and they gained credibility due to agricultural development and the increasing of the size of domestic markets. As revealed by Thorbecke and Wan (2004), East Asian governments showed that the major mechanisms for obtaining the resources needed for industrialisation were intersectoral transfers from agriculture: the agricultural sector would generate a surplus that finances industrialisation. Another crucial mechanism is the spread of primary education throughout rural areas: hence the processes have consisted of the development of non-farm activities, then migration, then labour-intensive industry, then outward-orientation and industrial policies. Indeed, education and training, particularly within the civil service, were pivotal strategies, together with the minimal use of foreign expatriates and the expansion of infrastructures, policies being oriented not only towards education, but also equality (Bourguignon et al., 1998 on the example of Taiwan). Inequality has been reduced not 12 via large redistributive transfers stemming from high levels of taxation and revenue extraction, but via policies such as land reform and promotion of primary education that redistributed assets and reallocated factors: in Korea, e.g., these policies took the form of the introduction of high-yielding varieties in the agricultural sector, the promotion of upward mobility and the building of middle classes via education (World Bank 2004; Kim 2006). Some original features: taxation, social protection, political objectives The ‘developmental states’ (Korea, Japan, Taiwan) were characterised by the absence of natural resources. Auty (2001) has suggested a relationship between the presence of natural resources and lack of growth or corruption, while the absence of natural resources fostered growth and modern ‘Weberian’ types of states and bureaucracy. Another key point is that public policies were policies providing incentives, and not aimed at ‘owning’ the economy, e.g. via large taxation, spending and redistribution, or nationalisation, or recycling the country’s wealth. Developmental states did not rely on high levels of tax collection and massive redistribution and transfers. As shown by Knowles and Garces-Ozanne (2003), state intervention cannot be assimilated to government spending in Asian states: it mostly took the forms of instructions regarding what to produce as well as economic and political incentives – subsidies, changes in resource allocation, relative prices, etc. Developmental states were not welfare states, European style. The state did not provide social security of the kind set up in European welfare states. Many functions that are achieved by the state in welfare states, e.g. social protection, were achieved by the private sector and households. Social protection relied on networks, and an important feature is that these networks were aimed at being productive and generating wealth and profit (Sindzingre, 2005). Social security was provided by a combination of state institutions, markets and family structures - the missing links between the first two - that also function as production units and safety nets (Gough, 2000a). The coalescence between the family structures and public institutions of developmental states has been described as a ‘productivist’ welfare regime in which social policies are subordinate to economic growth objectives and policies (Gough, 2000b). The concept of the developmental state has explained growth performances of East Asian countries as resulting simultaneously from a specific combination of economic, political and institutional structures, which takes place in a given space and time. Developmental states show the importance of historical trajectories, of the existence of a strong state and a government having a clear conception of economic development. This is more than a trade strategy: they are the expression of a long-term dynamic perspective in managing industrial transition. Developmental states demonstrated that ingredients of growth cannot be considered in isolation: alone, each feature of Asian developmental states did not automatically lead a country to growth. E.g., the coordination between public and private agents can amount to mere collusion in some contexts and a condition for development in others (Shafaeddin, 2005). Politics played a crucial role in the shaping of developmental states: growth was instrumental for building political legitimacy. At the time of the catching-up, from the 13 1960s onwards, rulers were not democratic (as in South Korea). Public policies were built around long-term relations between political power and the private sector, e.g., banks and public and private firms – Dunning’s (1997) ‘alliance capitalism’. Simultaneously, developmental states have given priority to the autonomy of the technocracy vis-à-vis political power. Public policies had not only the objectives of enhancing the functioning of markets, but also creating suitable political conditions. In Korea for example, the policies that led to growth have been explained as firstly a result of political considerations that largely relied on exchanges of bribes between state and business and ‘money politics’ (Kang, 2002): corruption remains pervasive (‘crony capitalism’), but it is contained as the rulers pursue the objective of growth: growth is in their interests as it provides them with political legitimacy. Similarly, governments pursued social policies and built up social welfare programmes for domestic political motives, i.e. the desire of governments to strengthen their weak legitimacy, as in the case of Korea (Kwon, 1999). Social policies were based on “productivism, selective social investment and authoritarianism” and subordinated to the simultaneously economic and political objective of growth (Kwon, 2005). Likewise, the more inequality was reduced, the more governments’ policies could be legitimated (Sindzingre, 2009b). The critique of the model of the developmental state by the international financial institutions and the East Asian financial crisis The IFIs did not agree with the idea that these features that would build a concept of a ‘developmental state’ were the factors of growth of East Asian countries, as their policies diverged from the reforms that the IFIs recommended to developing countries in the 1980s and 1990s, e.g. liberalisation, privatisation, and the underlying paradigm that liberalisation will be conducive to growth. The World Bank launched in 1993 a report explaining its own version of the factors of growth in East Asia, ‘The East Asian Miracle’. Preceding the World Bank World Development Report 1997 rehabilitating the role of the state, this report reinterpreted economic policies and growth in developmental states as outcomes of ‘market friendly’ state intervention. In this view, government intervention is useful when it corrects market failures: it can make some people better off (by correcting the market failure) without making anyone worse off. Japan, which could be considered as an example of a developmental state, disagreed with some views of the report, which has been criticised as being biased in order to confirm the positive effects of reforms inspired by the neoclassical paradigm, i.e. the minimising of state intervention and liberalisation. As shown by Amsden (1994), the World Bank attributed the East Asian ‘miracle’ to high saving and investment rates, expenditures on education, and exports: however, the latter were anchored in microinstitutions that exhibit pervasive state intervention. For Amsden, East Asia created competitiveness by subsidising learning (Lall, 1994), and the market failures that affect industrial development were addressed by the industrial policies of Japan or South Korea. In 1997-98, East Asia was destabilised by the ‘Asian financial crisis’, which started in Thailand in July 1997, then affected the whole of East Asia. The Asian crisis affected developmental states, when under the pressure of the IMF they reduced state 14 intervention and relative protection through targeted subsidies and exonerations: e.g., in South Korea, when it liberalised its financial sector in the years before the crisis. Korea and Taiwan implemented some liberalisation in the 1980s when they suffered from declining exports, increased debt burden and an increasing current account deficit. As underscored by Weisbrot (2007), the Asian crisis showed the dangers of sudden speculative reversals of international capital flows, which precipitated the crisis, and the problem of ‘contagion’ and herd behaviour of investors, which resulted from IMFrecommended capital account liberalisation. The IMF reacted to the crisis by prescribing even more trade and financial liberalisation, failing to act as a lender of last resort, although it was most needed. For the IFIs, the Asian crisis refuted the existence of a ‘developmental state’. After the Asian crisis in 1997, the original modes of alliance characterising developmental states, e.g. in South Korea, between the banks and the chaebols were presented by the IFIs as examples of ‘bad’ corporate governance and corruption. The Asian crisis was said to be an outcome of the weaknesses of the ‘developmental state’ model. Capital controls and targeted protection were causes of inefficiency: e.g. limitation of foreign ownership in the banking sector, and capital controls were feeding cronyism and corruption (Johnson and Mitton, 2001 on cronyism in Malaysia). In contrast, it has also been argued that heterodox policies and capital controls have been efficient, and even more than financial openness: capital controls helped some Asian countries to get out of the crisis rapidly (Kaplan and Rodrik, 2001), such as in Malaysia. China: a growth driven by government as well as trade and industrial policies The nature of government and role of state intervention in the growth of China is the matter of an abundant literature, and many lessons for other developing countries can be drawn from China’s spectacular growth since the 1980s. When China started its reforms in 1979, it demonstrated the success of heterodox and developmental policies and institutions. As shown by Aglietta (2009), Chinese reforms have been based on 3 key principles: the economy must produce wealth and in a efficient way (“catching up with the West”); the state must secure substantial property rights; the state must produce public goods and be the engine of a endogenous type of growth. Another commonality with earlier developmental states is that this model of growth exhibits an intrinsic political dimension, with the Party controlling the political system. For Aglietta, this model of reform has been based on a simultaneous transformation of economic structures and state institutions, relying on gradualism (i.e., not a ‘shock therapy’ as was applied in, e.g., Russia after the collapse of the Soviet Union), which has been supported by the continuity of the political leadership and hence a long-term view of reforms, as well as pragmatic trial and error. Aglietta, however, notes that export-led growth entails problems, especially a distorted price structure, as fiscal exonerations are artificial incentives to external trade, which is also a problem of the industrial policies implemented by the Asian developmental states. However, what is common to ‘developmental states’ and China is government intervention, with the government having a commitment to preserving market incentives. As highlighted by Weingast et al. (1995), China's success relied on types of political reforms that provided credible commitment to markets and were based on 15 institutionalised decentralisation. The latter has fostered competition in product markets, but also among local governments for labour and foreign capital, which in turn encouraged local government learning with new forms of enterprises and regulation; it has provided incentives for local governments to promote local prosperity and protected local governments and their enterprises from political intrusion by the central government. Similarly, for Qian (2002), China has grown despite the absence of institutions such as an independent judiciary and private property rights, although institutional economics views them as positively correlated with growth. China’s reforms consisted in institutional changes concerning markets, firms and the government, which built ‘transitional institutions’. The success of these institutions, for Qian, relied on their capacity to achieve simultaneously two objectives: the improvement of economic efficiency via the provision of incentives and competition, and reforms that were compatible with the interests of those in power. China elaborated an original pattern of firms: the Township-Village Enterprises (TVEs) were associated with non-conventional ownership forms, based on the local government control of firms, in contrast with private or national government control. Qian emphasises that the model of growth adopted by China succeeded because institutional development fitted into the initial conditions and was compatible with the interests of the ruling groups. This may be compared with Botswana, where, in contrast with many SSA countries, imported institutions were consistent with the political interests of the people in power. China’s growth highlights the context-specificity of economic and political outcomes, which may not come out in cross-country regressions, and the success of ‘heterodox’ public policies. In addition, China’s growth and heterodox public policies in the 1980s and 1990s were associated with a sharp reduction in poverty rates: - 1.9% point per year over 19812004, vs. 0.1% in SSA, despite negative aspects, e.g., the rise in inequality. This is acknowledged by the World Bank: for Ravallion (2008) as well, China’s growth and poverty reduction may be explained by the improvement of productivity in agriculture and a strong state and civil service. 3. Contrasting with state capacity in Sub-Saharan Africa: different constraints and the mixed effects of reforms Some features appear to be common to developmental states and Sub-Saharan African states, e.g., in the phase before the catching-up, limited capacities, especially redistributive ones, low tax/GDP ratios and a model differing from that of European welfare states, as well as a strong dependence on global demand and foreign direct investment - hence the volatility of investors perception -, and the overlapping of private and public interests. While it has been argued that developmental states were developmental because they had no natural resources (Auty, 2001), the second wave of high-growth Asian countries have relied on natural resources and their rents in the case of South-East Asia. Behind these commonalities, however, there are striking differences. 16 The problems of state formation after independence An important difference of SSA states with East Asian states at the time of their catching-up (in the 1960s) is the problem of state formation they were confronted with at the time of their independence (also in the 1960s). In phase with the prevailing paradigm in development economics at that time, the post-independence period was the period of the ‘big push’, i.e. government-promoted investment programmes in domestic infrastructure and inter-related industrial investments, and active government intervention. A crucial problem for state formation in SSA, which had an important impact on its countries’ economic trajectories, is the political instability that followed the period of independence. Posner and Young (2007), emphasising the negative impact of political instability, showed that nearly 3/4 of the African leaders who left power in the 1960s and 1970s did so through a coup, violent overthrow, or assassination – the good news being that in the 1980s, this dropped to below 70%, and by the 1990s it was surpassed by the share of those who peacefully left power. SSA leaders were 2 to 3 times more likely than other leaders in the world to leave power by violent means in the 1960s, 1970s, and 1980s, a period that was followed by an increasing institutionalisation of political power. Another constraint is that after independence, the post-colonial state has been confronted with problems of state-building. The latter has been achieved via the state being a main owner of national assets and the main employer. Public employment has progressively represented the largest part of total non-agricultural employment: in some countries, 70% at the end of the 1970s. Governments became the first employers in the formal sector and progressively, the ‘employers of last resort’. In the context of the weakness of local private firms at the time of independence, especially in the industrial sector, public enterprises were created in all economic sectors – industrial, financial and so on, e.g., development banks. Public marketing boards were created as interfaces between producers and international markets, as well as mechanisms of redistribution and indirect taxation. Post-colonial state-building has also been faced with centrifugal forces (ethnic, territorial, political parties), and the necessity to build key infrastructures – e.g., ports, roads -, for which governments had to borrow, while being obliged to focus also on social objectives, and projects with social objectives are likely to have a low profitability’. An important issue, which highlights clear differences between developmental states in East Asia and SSA countries, refers to the relations between the private sector – local and foreign – and the state. Broadly, the ‘alliance capitalism’ of Asian developmental states has contrasted with a relative antagonism between rulers and private entrepreneurs in SSA, though the models obviously differed across SSA countries: the private sector has often been a creation of political rulers, as, e.g., Côte d’Ivoire, with private entrepreneurs being ‘clients’ of political rulers. Private wealth accumulation has often been perceived as a threat by rulers, or may have developed both via and outside state patronage (as, e.g., in Ghana) (Sindzingre, 1996). 17 Ravallion (2008) also underscores that SSA has been confronted with constraints that were absent in China: SSA countries tend to have higher inequality, higher dependency rates and lower population density. As shown by Herbst (2000), relative land abundance reduces inter-country conflict: in Europe it built strong states, but in SSA colonial partitions did not foster cohesive states. In addition, high density stimulates technological innovation, and low population density also makes it more expensive to supply basic infrastructure, such as roads. The question remains as to whether developmental states would have been possible in other developing countries, e.g. in low-income countries. Some SSA states exhibited similar ingredients, but rulers have been absorbed by the politics of nation-building (Mkandawire, 2001). Botswana is often quoted as an example of a successful state (Acemoglu et al., 2001), though the political and economic determinants of this success do not appear entirely comparable with those underlying the taking-off of South Korea or Taiwan. For Robinson and Parsons (2006), for example, Botswana became a legalrational state because political elites attempted to defensively modernise in order to maintain their independence, and their investment in the most important economic activity, ranching, has been a strong incentive to promote rational state institutions. Constraints on state capacity differentiating African states developmental states: savings and investment and Asian The persistence throughout the 20th century of the model of the ‘small open colonial economy’ (Hopkins, 1973), i.e. the import of manufactures and the export of primary commodities is a key characteristic of SSA countries. Most SSA countries were agricultural, but contrary to East Asia, they failed to promote industrialisation on the basis of farm production. In the industrial sector, the import-substitution process did not lead to the development of manufacturing exports, and SSA countries remained plagued by the lack of diversification (UNCTAD, 1998). In SSA, the real resources available to government remained constrained by the growth of export earnings and mainly restricted to trade taxes, which are subject to the instability of international markets. The limitations of this model, which fully revealed SSA’s external vulnerability, became apparent with the decline in commodity prices and SSA terms of trade, as well as the external shocks in commodities prices of the 1970s (1973, 1979, 1986) and the debt crisis (1982). Fiscal and current account imbalances increased, as well as public debt. SSA is an example of an important causal mechanism of growth or stagnation, of virtuous or vicious circles - ‘poverty traps’- that are caused by investment and savings. The latter indeed constitute a crucial factor of the difference between the trajectories of Asian developmental states and SSA countries. Akyüz and Gore (2001) revealed that SSA states received significant investment after independence, but could not sustain it and trigger a virtuous growth circle, failing to achieve a complementary increase of savings and exports Investment in Asia rose from the 1960s to the 1980s (from 10-15% of GDP to 30-40%), while it declined in SSA, being over the period 1990-97 at 17% of the investment levels of the 1960s. Akyüz and Gore emphasise that as SSA, Asia also depended on capital inflows and investment depended on foreign saving: but in Asia, investment was accompanied by a faster 18 increase in domestic savings, while in SSA, savings lagged behind investment, with investment increasingly dependent on external resources. This is shown by UNCTAD (2007) (see figures and table in annex). Similarly, exports rose faster than GDP in Asia, not in SSA. In SSA, the IFI adjustment programmes of the 1980s did not prevent the investment slump and failed to establish a sustained accumulation process linking investment with savings and exports. A key constraint on state capacity and public policies in Sub-Saharan Africa: the resilience of commodity-based market structures Commodity markets and prices are subject to two key problems. Firstly, as showed by Maizels (1984; 1987; 1994) in line with the theories of Raul Prebisch and Hans Singer, the decline of commodities’ prices relative to those of manufactures is a challenge for countries depending on primary commodities for their export revenues. Secondly, commodity markets and prices are intrinsically unstable. Maizels revealed the theoretical reasons for the deterioration of the commodity terms of trade over the longrun: the low price-and-income-elasticities of demand for commodities as compared with manufactures; the technological superiority of developed countries and the economic power of their transnational corporations, which allow these countries to capture the profits in trade with developing countries; and the asymmetrical impact of labour union power in developed countries and labour surplus in developing countries on the division of the benefits of increased productivity. At the time of their independence most SSA states were confronted with heavy economic constraints, the most important of which being the constraint of the market structure that was built over the 19th and 20th century by colonial trade, based on the production and the export of commodities to colonising countries, together with limited industrial sectors and a large agricultural subsistence sector, and therefore an excessive reliance on natural resources. This was the case at the time of colonisation and is still the case today – Hopkins’s perennial ‘small open economy’ model. According to the World Bank World Development Indicators (2004, 2007), in 2005, food represented 15% of the value of merchandise exports; agricultural raw materials, 5%; fuels, 36%; ores and metals, 10%; manufactures, 33%. This IMF estimates that oil represents around 50% of SSA exports. The resilience until the 21st century of the colonial structure of production and trade, the dependence on primary commodities for their exports, and the lack of structural transformation are indeed key characteristics of SSA states. The longevity of this market structure is considered as a root cause of their economic stagnation, their weak developmental dimension and the lack of commitment of rulers to development. Commodity dependence is a problem is it is often associated with export concentration: countries are excessively dependent on very few commodities for their exports, and hence the instability of their prices cannot be mitigated by other exports as would be the case in more diversified economies. UNCTAD (2008a) shows that more than half (78) of all developing countries rely on 4 commodities for 50% of their exports earnings; 31% rely on 4 commodities for more than 75% of their export earnings. UNCTAD defines the dependency rate as the average share of the 4 main commodity exports value 19 as of total exports value for the period 2003–2005: if the dependency rate is above 50%, it implies that more than 50% of national earnings from exports come from the 4 commodities. Such countries are highly vulnerable to commodity market fluctuations. The highest dependent countries with a dependency rate above 80% are West African countries and Western Asian countries, because of their exports of petroleum. Apparent commonalities, but differences in fact: taxation and political economy A trait that could be common to the developmental model in its early phase of the growth process and SSA states is that state capacity, as represented by its capacity to extract, invest and redistribute national wealth, was limited, far more than European welfare states where this recycling sometimes amounts to half of the GDP: they relied on levels of taxation that were limited. A low share of public revenues in the GDP, the ‘tax ratio’, characterises developing countries, with government spending increasing with per capita income – this association being coined the ‘Wagner Law’. The ratio of revenue to GDP (including non-tax revenues) in the low- and middleincome countries in the East Asia-Pacific region averaged 12% in 1990 and 11% in 2003, which is close to that of low-income countries (14 and 12%) (World Bank World Development Indicators 2004, 2005); it was 17% in South Korea in 1980 and 1990, and 23% in 2004 (World development Indicators 1998, 2004, 2006). In low-income countries the tax ratio (tax revenue/GDP) was around 15% in the period 1997-2001 and rose by only 0.5 points in the past decade. According to Gupta et al. (2005) and the IMF (2005a, b), in SSA, tax revenues represented 16.3% of GDP in the early 1990s and 15.9% in the early 2000s (Sindzingre, 2007). The colonial structure of trade and commodity dependence that characterised SSA has been associated to a taxation model, which is very vulnerable to the vagaries of the international environment and external shocks and hence very prone to fiscal imbalances. Commodity prices are in essence volatile, and this created serious constraints on the capacity of states to intervene in the economy. A crucial problem of state formation in SSA after independence was therefore its fiscal capacity, i.e. redistribution capacities. The commodity dependence and distorted structure of exports entail an excessive dependence of revenues on a very limited number of commodities (see graph in annex). This is particularly the case as, in many low-income countries, revenues depend on trade taxes or the taxation on the extraction of natural resources. As these governments have a limited capacity of tax collection, they rely much more on ‘easy to collect’ taxes (e.g., tariffs, royalties on extraction activities) to ‘hard to collect’ taxes (VAT, income tax) (Aizenman and Jinjarak, 2006), in contrast with East Asian states that achieved an industrial exports-led growth. Therefore, the intrinsic volatility of these commodity prices implies for states the volatility and unpredictability of their earnings. As underscored by UNCTAD (2003), government revenues in SSA countries depend heavily on taxes levied on exports and imports: fiscal earnings are thus highly vulnerable to changes in the value of export earnings (UNCTAD, 2003). This makes the management of fiscal deficits and debt extremely difficult and destabilises the building of state capacity (Sindzingre, 2009a). Moreover, since the 1980s, global trade 20 liberalisation and competition to attract foreign investment intensified the pressure for lowering taxes (trade taxes and taxes on corporate profits, World BankPriceWaterhouseCoopers, 2008). State capacity is however necessary to enhance tax collection and achieve tax systems that rely on more stable earnings (e.g., on VAT): there are the ingredients of a vicious circle and a poverty trap – commodities unstable earnings, hence weak state capacity, hence easy-to-collect taxes on trade and commodities, hence unstable earnings. In addition, behind the apparent commonality of limited levels of revenues and spending, taxation in SSA was grounded on political economies that differed from those of developmental states, and were often based on predation and rent extraction. States have been authoritarian in SSA since their independence, which could constitute a commonality with East Asian states, which are often deemed as authoritarian (e.g., Korea at the time of economic take-off, Singapore, or China). The type of authoritarianism prevailing in SSA, however, exhibited a different content. The time horizon of rulers – long-term or short-term - differed. Many regimes that stabilised after independence - often characterised by the desire of rulers to stay in power at any cost and single party regimes - can be even coined as genuinely anti-developmental (Robinson, 1996). As famously shown by Olson (1993), historical dynamics coupled with economic and political environments made it so that many SSA rulers were of the short-time type (predation rather than growth; rents rather than developmental taxes), which contrasts with Asian states. Also, redistributive policies and conflicts consolidated very inegalitarian institutions. Corruption could be a commonality, as it is pervasive in both regions. As in Asia, in SSA the state was providing little social security or welfare, which may foster the reliance of individuals on patronage and corruption. However, in SSA, in contrast with other parts of the world, political and economic environments have been characterised by uncertainty (Berry, 1993), which, combined with the lack of social security, has incited individuals to invest in social networks where debts and obligations provide social protection: this has fuelled corruptive behaviour, e.g., in the civil service, but in contrast with Asia, these networks of obligations were often not grounded on profitable and productive activities (Sindzingre, 2002; 2004b; 2005). All these factors have fostered the formation of poverty traps in SSA. Education in SSA has not been a key government objective and value as in Asia, and IFI stabilisation and adjustment programmes of the 1980s eroded education systems already plagued by limited resources and low public investment. Moreover, educated people often obtained a job after independence in the civil service, but the economic recession of the 1980s coupled with the IFI reforms contracted formal labour markets both in the public and the private sector, while public wages were frozen. The industrial private formal sector was not competitive vis-à-vis other developing countries, and in the 1980s, the already limited industries and industrial employment were severely challenged by trade openness reforms. Many educated people worked in the so-called informal sector or were driven to emigrate. This diminished the value of education, and therefore the prospects for an efficient bureaucracy, though Asian developmental states revealed its pivotal role in the efficiency of public policies and growth. 21 The negative effects of external intervention and aid dependence on state capacity These many constraints weighing on the capacity of SSA governments were not relaxed or improved by the external financial support provided by the IFIs after the 1980s, when the decline in the terms of trade in the 1980s induced unsustainable deficits, because many of these constraints – at least the economic ones - were structural, e.g. commodity dependence. The IFIs prescribed reforms aiming at minimising state intervention and liberalising economies. The success of reform programmes over the 1980s and 1990s has been mixed. In many countries, state capacity has been heavily constrained at the economic level by commodity-based market structures and at the political level by the fact the state was recent, destabilised by social fragmentation, secessions and struggles for legitimacy. In the 1980s, the IFIs civil service reforms, as well as privatisation, weakened this already weak capacity. In non-oil low-income countries, together with level of revenues that were both low and volatile, this combination of factors resulted in maintaining the dependence vis-à-vis IFIs financing - what the IMF coined as the ‘prolonged users’, i.e. countries in need of IFI external assistance over decades- and in some countries, an excessive dependence on external bilateral aid. For example, comparing 1991–95 with 1970–75, for lowincome countries on average, aid as a share of GDP increased from 6% to almost 15%, while private capital inflows (including FDI) fell from 2% to 1% of GDP (Morrissey, 2004). External aid often had a negative impact and aggravated the existing constraints. It is highly unpredictable and volatile, therefore not helping to build sustainable state capacity and committed civil services, as well as supporting long-term public policies (Bulir and Hamann, 2008). Aid has often over-burdened civil services and contributed to their fragmentation, although the latter had a limited capacity (Easterly, 2003; 2006). Aid dependence may also undermine institutional development and state institutions, it erodes public revenue and the legitimacy of its collection and destabilises the relationship between state and citizens: as shown by Moss et al. (2006), states which raise a substantial proportion of their revenues from aid are less accountable, under less pressure to maintain legitimacy, less likely to invest in effective public institutions. These factors contributed to the lack of structural transformation in SSA, i.e. the transformation of economies towards a model of growth that would free SSA aiddependent countries from external assistance and put them on a growth path based on domestic autonomous policies, such as in Asian developmental states and today China. Indeed, the maintenance of this dependence on aid over the ‘longue durée’ has been avoided by developmental states (Korea, Taiwan) at the time of their take-off. As underscored by Bräutigam (2000), Taiwan received high levels of aid from the United States, amounting to more than 18% of GNP between 1953 and 1963. This aid, however, lasted a short period of time, and due to a different geopolitical paradigm, aid financed infrastructure and institutions that enabled Taiwan to increase production and exports and enhanced its institutional capacity, thus reducing its need for aid. This is why for UNCTAD (2007) SSA countries must increase and diversify their domestic financial resources in order to reduce dependence on foreign aid, as well as channelling these resources to productive investments. UNCTAD suggests the model of Asian developmental states’ policies as the best way for SSA states to trigger a virtuous 22 circle of savings, investment and growth. With multilateral liberalisation and WTO membership, however, developing countries today do not enjoy the room for manoeuvre and the ‘policy space’ that were possible for Asian countries in the 1970s and 1980s. The ‘policy space’, or ‘development space’, is shrinking (Wade, 2003). Conclusion The paper has thus presented the evolution of the thinking regarding the role of the state in development economics and revealed that before the paradigm that prevailed from the 1980s until the 2000s, which viewed ‘big government’ as a cause of economic failure, the main theorists of development in the mid-20th century considered that the state was the major agent of growth in developing countries and the key engine of the taking-off process. The paper has then presented the main features of a model that has demonstrated positive relationships between state intervention and growth, i.e. the growth path that has been achieved by the Asian ‘developmental’ states since the 1960s onwards. The spectacular growth rates enjoyed by East Asian countries show that active public policies have a positive impact on growth: they consisted in industrial policies, including policies regarding taxation and trade, which were linked to other broader policies, e.g. regarding the structural transformation from an agriculture-based economy to an industrial one, and to social protection and education. These models of state intervention and public policies have finally been contrasted with those that have characterised many low-income countries, via the example of SubSaharan African countries after independence in the 1960s. The paper has argued that there may be apparent commonalities. Many dimensions of the state and policy choices, however, sharply differed in SSA from those in East Asia. The paper has emphasized the crucial role of different environments in SSA - differences in economic initial conditions, market structures – especially commodity dependence -, political regimes and external aid. They all strongly shaped state formation, state capacity, civil services, the specific impact and efficiency of public policies. These many dimensions and the way they combined with each other explain the mixed results of state intervention on growth in Sub-Saharan Africa and the striking contrast with its outcomes in East Asia. Therefore, contrary to the current conventional theories in development economics, a key conclusion is that it is not state intervention per se that has a detrimental effect on growth – which is confirmed by the generalised rescue plans provided by all developed economies’ governments during the financial crisis of 2008-09, despite their claim of the pre-eminence of the market. Certain features of a state, the legacy of its formation, combining with certain historical, economic and political conditions, may induce a negative impact; other features, of other states, which have combined with different historical, economic, political environments, have had a positive impact on economic growth. 23 Bibliography Acemoglu, Daron, Simon Johnson and James A. Robinson (2001), An African Success Story: Botswana, Cambridge MA, MIT department of economics working paper 01-37. Acemoglu, Daron and James Robinson (2006), Economic Origins of Dictatorship and Democracy, Cambridge, Cambridge University Press. Adelman, Irma (2000a), Fifty Years of Economic Development: What Have We Learned?, Paris, the World Bank, Annual Bank Conference on Development Economics. Adelman, Irma (2000b), The Role of Government in Economic Development, in Finn Tarp ed., Foreign Aid and Development: Lessons Learnt and Directions for the Future, London, Routledge. Adelman, Irma (2001), Fallacies in Development Theory and their Implications for Policy, in Gerald M. Meier and Joseph E. Stiglitz eds., Frontiers of Development Economics: The Future in Perspective, New York, World Bank and Oxford University Press. Aglietta, Michel (2009), Chinese Reform Confronted with the Global Crisis, mimeo, Paris, CEPII. Aizenman, Joshua and Yothin Jinjarak (2006), Globalization and Developing Countries: A Shrinking Tax Base?, Santa Cruz, University of California at Santa Cruz. Akyüz, Yilmaz and Charles Gore (2001), African Economic Development in a Comparative Perspective, Cambridge Journal of Economics, vol. 25, n°3, May, pp. 265-288. Amsden, Alice H. (1989), Asia's Next Giant: South Korea and Late Industrialization, New York, Oxford University Press. Amsden, Alice (1994), Why Isn’t the Whole World Experimenting with the East Asian Model to Develop? Review of the East Asian Miracle, World Development, vol. 22, n°4, pp. 627-633. Amsden, Alice H. (1997), Editorial: Bringing Production Back in: Understanding Government's Economic Role in Late Industrialization, World Development, vol. 25, n°4, April, pp. 469-480. Auty, Richard M. ed. (2001), Resource Abundance and Economic Development, Oxford, Oxford University Press and WIDER. Bardhan, Pranab and Christopher Udry (1999), Institutional Economics and the State in Economic Development, in Pranab Bardhan and Christopher Udry, Development Microeconomics, Oxford, Oxford University Press. Bates, Robert H. ed. (1988), Toward A Political Economy of Development: A Rational Choice Perspective, Berkeley, University of California Press Bourguignon, François, Martin Fournier and Marc Gurgand (1998), Fast Development with a Stable Income Distribution: Taiwan, 1979-1994, mimeo, Paris, Delta. Bräutigam, Deborah (2000), Aid Dependence and Governance, Stockholm, EGDI and Almqvist and Wiksell International. Bulir, Ales and Javier Hamann (2008), Volatility of Development Aid: From the Frying Pan into the Fire?, World Development, vol. 36, n°10, pp. 2048–2066. Dore, Ronald (1986), Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy, 1970-1980, London, Athlone Press. Dunning, John H. (1997), Alliance Capitalism and Global Business, London, Routledge. Easterly, William (2003), The Cartel of Good Intentions: the Problem of Bureaucracy in Foreign Aid, Journal of Policy Reform, pp. 1-28. Easterly, William (2006) The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, New York, Penguin Press. Garrett, Geoffrey (2001), Globalization and Government Spending around the World, Studies in Comparative International Development, vol. 35, n°4, pp. 3-29. 24 Gough, Ian (2000a), Welfare Regimes in East Asia and Europe: Comparisons and Lessons, mimeo, World Bank ABCDE-Europe, Workshop ‘Towards the New Social Policy Agenda in East Asia’. Gough, Ian (2000b), Welfare Regimes in Asia, mimeo, University of Bath, Department of Social and Policy Sciences. Gupta, Sanjeev, Benedict Clements, Emanuele Baldacci and Carlos Mulas-Granados (2005), Fiscal Policy, Expenditure Composition, and Growth in Low-income Countries, Journal of International Money and Finance, vol. 24, n°3, pp. 441-63. Herbst, Jeffrey (2000), State and Power in Africa: Comparative Lessons in Authority and Control, Princeton, Princeton University Press. Hoff, Karla (2000), Beyond Rosenstein-Rodan: the Modern Theory of Underdevelopment Traps, Washington D. C., the World Bank, Annual World Bank Development Economics Conference. Hopkins, A. G. (1973), An Economic History of West Africa, London, Longman. Huff, W. Gregg, G. Dewit and C. Oughton (2001), Building the Developmental State: Achieving Economic Growth Through Cooperative Solutions: a Comment on Bringing Politics Back In, Journal of Development Studies, vol. 38, n°1, October, pp. 147-151. IMF-International Monetary Fund (2005a), Review of PRGF Program Design: Overview, Washington, D. C., International Monetary Fund, Policy Development and Review Department. IMF-International Monetary Fund (2005b), Monetary and Fiscal Policy Design Issues in Low-income Countries, Washington, D. C., International Monetary Fund Policy Development and Review Department and Fiscal Affairs Department. IMF-International Monetary Fund (2009), The Implications of the Global Financial Crisis for Low-Income Countries, Washington D. C., International Monetary Fund. Johnson, Chalmers (1982), MITI and the Japanese Miracle: the Growth of Industrial Policy, 1925-1975, Stanford, Stanford University Press. Johnson, Simon and Todd Mitton (2001), Cronyism and Capital Controls: evidence from Malaysia, Cambridge MA, NBER working paper 8521. Kahler, Miles (1992), External Influence, Conditionality and the Politics of Adjustment, in Stephan Haggard and Robert R. Kaufman eds., The Politics of Economic Adjustment: International Constraints, Distributive Conflicts and the State, Princeton, Princeton University Press Kang, David C. (2002), Bad Loans to Good Friends: Money Politics and the Developmental State in South Korea, International Organization, vol. 56, n°1, Winter, pp. 177-207. Kaplan, Ethan and Dani Rodrik (2001), Did The Malaysian Capital Controls Work?, Cambridge MA, NBER working paper 8142. Kim, Ji-Hong (2006), Korean Experience and African Economic Development, Tunis, African Development Bank Economic Conference, 22-24 November. Knowles, Stephen and Arlene Garces-Ozanne (2003), Government Intervention and Economic Performance in East Asia, Economic Development and Cultural Change, vol. 51, n°2, January, pp. 451-477. Krueger, Anne O. (1974), The Political Economy of the Rent-Seeking Society, American Economic Review, vol. 64, n°3, pp. 291-303. Kwon, Huck-Ju (1999), The Welfare State in Korea: the Politics of Legitimation, London, Macmillan. Kwon, Huck-ju (2005), Transforming the Developmental Welfare State in East Asia, Development and Change, vol. 36, n°3, pp. 477-497. Lall, Sanjaya (1994), The East Asian Miracle: Does the Bell Toll for Industrial Strategy?, World Development, vol. 22, n°4, April, pp. 645-654. 25 Maizels, Alfred (1984), A Conceptual Framework for Analysis of Primary Commodity Markets, World Development, vol. 12, n°1, pp. 25-41. Maizels, Alfred (1987), Commodities in Crisis: An Overview of the Main Issues, World Development, vol. 15, n°5, pp. 537-549. Maizels, Alfred (1994), The Continuing Commodity Crisis of Developing Countries, World Development, vol. 22, n°11, pp. 1685-1695. Mkandawire, Thandika (2001), Thinking about Developmental States in Africa, Cambridge Journal of Economics, vol. 25, n°3, May, pp. 289-313. Morrissey, Oliver (2004), Conditionality and Aid Effectiveness Re-evaluated, World Economy; vol. 27, n°2, pp. 153-171. Moss, Todd, Gunilla Pettersson, and Nicolas van de Walle (2006), An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa, Washington D. C.? Center for Global Development, working paper 74. Myrdal, Gunnar (1968), Asian Drama: An Inquiry into the Poverty of Nations, New York: Pantheon. Olson, Mancur (1993), Dictatorship, Democracy and Development, American Political Science Review, vol. 87, n°3, September, pp. 567-576. Posner, Daniel and Daniel Young (2007), The Institutionalization of Political Power in Africa, Journal of Democracy, vol. 18, n°3, pp. 126-140. Qian, Yingyi (2002), How Reform Worked in China, University of Michigan Business School, William Davidson Institute working paper 473. Ravallion, Martin (2008), Are there Lessons for Africa from China’s Success against Poverty?, Washington D. C., the World Bank, policy research working paper 4463. Reno, William (1998), Warlord Politics and African States, Boulder, Lynne Rienner. Robinson, James A. (1996), When is a State Predatory?, mimeo, Los Angeles, University of Southern California (USC), Department of Economics. Robinson James A. and Q. Neil Parsons (2006), State Formation and Governance in Botswana, Journal of African Economies, vol. 15, AERC supplement 1, pp. 100–140. Rodrik, Dani (1997), The Paradox of Successful States, European Economic Review, vol. 41, n°3, pp. 235-257. Rodrik, Dani (1998a), Globalisation, Social Conflict and Economic Growth, World Economy, vol. 21, n°2, March, pp. 143-158. Rodrik, Dani (1998b), Why Do More Open Economies Have Bigger Governments?, Journal of Political Economy, vol. 106, n°5, pp. 997-1032. Rosenstein-Rodan, Paul N. (1943), Problems of Industrialization of Eastern and South-Eastern Europe, Economic Journal, vol. 53, n°210-211, June-September, pp. 202-211. Shafaeddin, Mehdi (2005), Towards an Alternative Perspective on Trade and Industrial Policies, Development and Change, vol. 36, n°6, pp. 1143-1162. Sindzingre, Alice (1996), Industrie, ajustement et « entrepreneurship » en Côte d'Ivoire et au Ghana, University of Leipzig, Leipzig Series on Africa, Politics and Economics, n°2. Sindzingre, Alice (1998), The 1997 World Development Report: Better Policies and International Governance, IDS Bulletin, vol. 29, n°2, April, pp. 56-66. Sindzingre, Alice (2002), African Corruptions: Elements for a Comparative Analysis with East Asia, in Arnold J. Heidenheimer and Michael Johnston eds., Political Corruption: Concepts and Contexts, New Brunswick NJ, Transaction Publishers. Sindzingre, Alice (2004a), Bringing the Developmental State Back In: Contrasting Development Trajectories in Sub-Saharan Africa and East Asia, mimeo, Washington D. C., Society for the Advancement of Socio-Economics (SASE) 16th Annual Meeting, Georges Washington University. Sindzingre, Alice (2004b), Economic Reforms, the State, and Corruption: Some Insights from Sub-Saharan Africa, in R. B. Jain ed., Corruption-free Sustainable Development: 26 Challenges and Strategies for Good Governance, New Delhi, Mittal Publications and IPSA RC 4. Sindzingre, Alice (2005), States, Networks, and Rents: Contrasting Corruption in Africa and Asia, in Michael Johnston ed., Civil Society and Corruption: Mobilizing for Reform, Proceedings of the Center for Ethics and World Societies, Colgate University, Lanham, MD, University Press of America. Sindzingre, Alice (2007), Financing the Developmental State: Tax and Revenue Issues, Development Policy Review, vol. 25, n°5, September, pp. 615-632 (Theme issue ‘Developmental States in the New Millennium’). Sindzingre, Alice (2009a), The Uncertain Prospects of Commodity-Dependent Developing Countries, in Machiko Nissanke and George Mavrotas eds., Commodities, Governance and Economic Development under Globalisation, in Memory of Alfred Maizels, Basingstoke, Palgrave Macmillan, forthcoming. Sindzingre, Alice (2009b), Financing Developmental Social Policies in Low-Income Countries: Conditions and Constraints, in Katja Hujo and Shea McClanahan eds., Financing Social Policy: Mobilizing Resources for Social Development, Basingstoke, Palgrave Macmillan and Geneva, UNRISD. Sokoloff, Kenneth L. and Stanley L. Engerman (2000), Institutions, Factors Endowments and Paths of Development in the New World, Journal of Economic Perspectives, vol. 14, n°3, Summer, pp. 217-232. Stiglitz, Joseph E. (1997), The Role of Government in Economic Development, in Michael Bruno and Boris Pleskovic eds., Annual Bank Conference on Development Economics 1996, Washington D. C., the World Bank. Tanzi, Vito (2000) The Role of the State and the Quality of the Public Sector, Washington D. C., International Monetary Fund, working paper WP/00/36. Teranishi, Juro (1997), Sectoral Resource Transfer, Conflict and Macrostability in Economic Development: a Comparative Analysis, in Masahiko Aoki, Hyung-Ki Kim and Masahiro Okuno-Fujiwara eds., The Role of Government in East Asian Economic Development: Comparative Institutional Analysis, Oxford, Clarendon Press. Thorbecke, Erik and Henry Wan Jr. (2004), Revisiting East (and South East) Asia’s Development Model, mimeo, Ithaca, Cornell University Conference ‘Seventy Five Years of Development’, May 7-9. Tilly, Charles (1985), War Making and State Making as Organized Crime, in Peter Evans, Dietrich Rueschemeyer and Theda Skocpol eds., Bringing the State Back In, Cambridge, Cambridge University Press. Toye, John (1987), Dilemmas of Development, Oxford, Blackwell. UNCTAD (2003), Economic Development in Africa. Trade Performance and Commodity Dependence, Geneva, UNCTAD. UNCTAD (2007), Economic Development in Africa: Reclaiming Policy Space: Domestic Resource Mobilization and Developmental States, Geneva, UNCTAD. UNCTAD (2008a), Development and Globalization: Fact and Figures, Geneva, UNCTAD. UNCTAD (2008b), Trade and Development Report 2008: Commodity Prices, Capital Flows and the Financing of Investment, Geneva, UNCTAD. Van de Walle, Nicolas (2001), African Economies and the Politics of Permanent Crisis, 1979-1999, Cambridge, Cambridge University Press Wade, Robert (1990), Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, Princeton, Princeton University Press. Wade, Robert (2000), Governing the Market: a Decade Later, London, London School of Economics, LSE Development Studies Institute working paper n°00-03. 27 Wade, Robert (2003), What Strategies are Viable for Developing Countries Today? The World Trade Organization and the Shrinking of ‘Development Space’, Review of International Political Economy, vol. 10, n°4, November, pp. 621-644. Weingast, Barry R., Yingyi Qian and Gabriella Montinola (1995), Federalism, Chinese Style: the Political Basis for Economic Success in China, World Politics, vol. 48, n°1, October, pp. 50-81. Weisbrot, Mark (2007), Ten Years After: The Lasting Impact of the Asian Financial Crisis, Washington D. C., CEPR, August. White, Gordon ed. (1988), Developmental States in East Asia, London, Macmillan. Williamson, John (1990), What Washington Means by Policy Reform, in John Williamson ed., Latin American Adjustment: How Much Has Happened?, Washington D. C., Institute for International Economics. World Bank (1993), The East Asian Miracle: Economic Growth and Public Policy, Washington D. C., the World Bank. World Bank (1997), World Development Report 1997: the State in a Changing World, Washington D. C., the World Bank. World Bank (2004), Republic of Korea: Four Decades of Equitable Growth: A Case Study from Reducing Poverty, Sustaining Growth, What Works, What Doesn’t, and Why: A Global Exchange for Scaling Up Success, Shanghai Conference Scaling Up Poverty Reduction, Washington, D. C., the World Bank. World Bank-PriceWaterhouseCoopers (2008), Paying Taxes 2008, Washington D. C., the World Bank. ANNEXES Gross domestic savings in Sub-Saharan Africa, 1960–2005 (per cent of GDP) Source: UNCTAD (2007), figure 1. 28 Gross domestic savings by developing regions, 1960–2004 (per cent of GDP) Source: UNCTAD (2007), figure 2. Gross national savings, gross domestic investment and exports in the Asian NIEs and Africa, 1971–2005 (per cent of GDP) Source: World Bank, World Development Indicators, online, May 2007. a 1960 only; b Including Singapore, which became independent in 1963, having enjoyed self-government between 1955 and 1963; c Gross domestic investment for sub-Saharan Africa (excluding South Africa); * Akyüz et al. (1998) from UNCTAD database. Source: UNCTAD (2007), table 3. 29 Commodity revenues to total revenue, 2008 (ratio, in percent of total revenue) Source: International Monetary Fund (2009). Commodity dependence by geographical region, 1995–1998 and 2003–2006 (number of countries for which exports of commodities account for more than 50% of total exports) Source: UNCTAD (2008b), table 2.4.