Lets talk about this; there will never be another China

It is generally acknowledged that the role of the state in the market is vital in accelerating growth as experienced by the Asian tigers;  Singapore, Taiwan, Hong Kong and South Korea, thus the applicability of this model became common with replicating and propelling development in  the 1980s and 19902 (Starks, 2010). This entry seeks to discuss the applicability of the developmental state model to propel development in contemporary times. The success of the Asian tigers is a significant example of state invoked development. It is assumed that the success of developmental state model in these Asian nations is attributed to the unique political, economic and ideological conditions presence in these nations and failed attempt by other nations to successful replicate this model is due to a lack of these unique factors. Factors to be explored includes the progression of the rules and structures governing world trade, the shift from liberalism to neo-liberalism, the unraveling of the cold war which propelled the state in gaining more economic power. Also, it considers the failures of the developmental state in African states, the implication of the collapse of Washington Consensus.

Although there is a general consensus on the failure of the developmental state to propel growth, Adrian Leftwich (2008), proposes that it is unlikely in contemporary times for a nation to transit from poverty to growth without strategies that response to the developmental model of development; reinforcing the models relevance to development process.

Moving on, it needs to be acknowledged that this entry uses words such as poorer countries’, developing countries, less developed’ interchangeably to mean countries seeking to attain development. It also utilizes words like  ‘the big four’ ‘Asian Tigers’ interchangeably referring to the successful development state of  East Asian encompassing Hong Kong, Taiwan, Singapore and South Korea, all developed rapidly due to the market interference by the state.

The term ‘developmental states’ connotes the role of a state in navigating the market to propel development with the use of state resources in meeting the needs of the people (Clark and Jung, 2002) however, the overriding preposition of developmental state is establishing and synchronizing relationship between the state and the social partners to achieve a common goal; development (Rhodes, 1997; Benington & Harvey, 1998). The idea of replicating developmental states focused on enhancing the role of the state to stimulate economic growth by direct intervention rather than depending on the uncertain market forces to meet the needs of the people.

Presently, South Korea, Taiwan, Hong Kong, Singapore are currently regarded as the economic and political power-house of the twenty-first century. Despite their previous state of development, the Asian big four initiated a plan that rapidly brought economic power and development to societies with relatively poor and limited natural resources. The common factor of the success level of all four Asian nations lays in their commitment to economic development that provides required human, material and institutional resources. The state played a major role in all scenarios, this is evidence in the state’s role in the establishment of the new land reforms, increasing the rate of female in employment and remodeling an uncultivated economy into a blooming industrial economy in just under two decades (Kim, 1993).

Furthermore, as the developmental state centers upon the active role of the state in mobilizing economic growth, it is unanimously accepted that the state’s role is the common factor in the rapid growth as applied by the Asian tigers.  The attempt by developing nations such as South Africa and Botswana to explore this model has so far proved challenging (Edigheji, 2010) due to some external and internal factors thus, a general consensus has been reached that “the developmental state is no longer replicable”. This entry intends to explore the hypothesis that the developmental state is no longer applicable in contemporary times.

Background

The developmental state dates as far back as the 18th century; the era of America’s domination, Germany’s protectionism of the 19th century and more recently the emergences of the importation industry by Japan and North America’s in the late 20th century. The developmental state has so far proved significant for the newly industrialized East Asian nations otherwise referred to as the ‘Asian tigers’. The Asian tigers fervently opposed the neoliberal and Washington consensus agenda which arose in the early 1980s (Fine, 2011).  The Washington consensus focused on liberalizing trade, market liberalization, get rid of the barriers to foreign direct investment (FDI), deregulation of legal framework, unified and competitive exchange rate, decrease public expenditures, tax reforms, flexible labor market and creating safety net as effective path to economic growth. Neo-liberal approach is based on the economics of development driven by social policies, and efficiency of the private sector, free trade, open markets and more recently the good governance agenda. Neo-liberalism disregards the role of the state which tends to make it overlook a great deal of evidence of mutually supportive relationship between states and the market and how it can propel growth. A good example of state intervention is its effectiveness in Japan, South Korea, Taiwan and the Scandinavian countries where the state played a major role acting as the enabler and protector of the private sector development (Chang, H-J, 2003).  Therefore, the aim of the neo-liberal agenda which was an updated version of the Washington consensus was attempting to re-position western economies to respond to the arising dynamisms of capitalism in global economy. Citing Joseph Stiglitz, the thesis of the consensus is confined to a single perspective resting on the understanding of the import-substitution industrialization crisis in Latin America with no regards to regional disparities. The Post-Washington consensus however, assumes that the role of effective institution was the solution to development challenges (Fine, 2011).

According to a World Bank report; Accelerated development also referred to as the Berg report (1981), slow growth in Africa was attributed to the various crisis plaguing African states and the claim that African governments were bias in their developmental policies. The report initiated and advocated the policy dialogue which propelled the bank to encourage African state’s government to embark on the policy reforms and structural adjustment to boast economic growth through the loan programmes aimed at structuring changes thus growth as aspired by the Washington consensus.

It is relevant to note that these emerging new policies were not structured to break the dependency that existed between the western economy and less developed countries, but rather it bred continuity under new sets of agenda. Why is important?  The scope for the poor to organize and the methods that can aid such processes are highly inter-dependent on the characterization accompanied with types of government, the shape of public policies and the behavior and role of the elites in such societies. Bauer (1981) refers to the current state of things as creating rent-seeking society, Hoogvelt (1997) ascribed it ‘debt peonage’ while George (2004) proposes that this type of control over poorer countries could go unnoticed, because it does not required stringent exercise of power as it can be administered through invisible factors such as market policies, regulations, and other restrictions such as aid conditions.

Furthermore, in Africa, the demand for structural adjustment was based on the argument that developmental state could not accelerate growth and also that the government of the African state had immense authority which had to be curtailed in order for the exportation industry to blossom and provide opportunities for African nations to earn foreign exchange which could contribute to its economy and relieve debt. In this perspective, the report also noted that the dependency of the African states on the western economies intensified debt crisis which is also detrimental to growth.

A lot of the challenges  common to the failure of state interventions were rooted in ‘state components’ such as shift in business structures, ineffectiveness of the state supremacy and weak institutions, changes in trade nature and policy, also changes in social, cultural and historical factors which in practice serves as an obstacle to replicating developmental states. This report also draws on some lessons from China’s experience.

Institutions and the State

The apprehension of the relevance of institutions has prompted the reassessment of the role of the state from an economic acceleration perspective. The World Bank(1989) ascertains that the major cause of underdevelopment in Africa is as a result of poor governance; indicating that the Africa states are unable to channel political power to managing state affairs and resources. Acemoglu (2005) argues that both a powerless and toxic states can stifle investments, and that the achievement of OECD countries has been to develop a combination of politically weak but economically strong (i.e. high tax) states. This is reminiscent of Michael Mann’s (1993) differentiation between the despotic and the infrastructural powers of the state, with despotic powers referring to the ability to use force and infrastructural powers defined as the ‘capacity of the state to ingress the civil society, and to implement logistically political decisions throughout these realm’. The extraction of resources (human or material) from society is a key element of such infrastructural power.

As Mushtaq Khan (2011), argues that if property rights are unclear and contractual enforcement ineffective, transaction would be more expensive than it ought to be indicating that reducing transaction cost could correct market failure in this scenario. Drawing on this perspective suggests that the markets is just market and that history can repeat itself if the conditionings (institution and state) are harnessed to rid the market of externalities that prevents positive outcomes (Fine, 2011).  Additionally, formal institution; the supremacy of the law, rules and regulation and informal institutions; norms, culture, convention and traditions (‘the rules of the game’) affects the process of establishing functioning institutions however, it is important to note that strong institutions and state is not determining factor in regulating human behavior to align with desired outcome. Mostly, the state’s authority and capacity are obfuscated by the interference of the non-state actors. These patterns become the   norm and hard to shift however, a firm grip of the activities of the actors is emphasized in the developmental state paradigm, which in practice is difficult to replicate.

Social, economic and political institutions overlap and affect developmental outcomes. Thus, developmental success is predicated on negotiating institutional arrangements. The argument is that in theory, developmental state has what it takes for industrial take-off however, in practice, strong efficient capacity (institutions) needs to be established to engineer and regulate growth and development processes.

Shift in International Trade

As implied by Clark, Jung and Kim, the developmental state model was firmly rooted on importation/exportation trade and manufacturing to induce growth (Clark and Jung, 2002; Kim, 1993).  This assumption is best illustrated by the success of the state primed growth in South Korea (Kim, 1993; Clark and Jung, 2002) as experienced by companies such as Samsung and Hyundai who becomes global leaders in their respective sectors. The challenge is that this is no longer possible in contemporary times as international trade has evolved to currently constitute of trade in services (Oakley, 2006; Weiss, 2005) and this is relative to the emergence of the knowledge society. In practice, regulating service even when protected is extremely challenging (Wade, 2003). Furthermore, establishing what performance criteria in order to measure progress and impose levy is difficult as measuring standards is daunting (Oakley, 2006).

Finally, services are qualitative in nature thus, development will require more time to become evident (Gelb, 2008), and meaning building human capacity is more advisable and could prove more productive over time as opposed to Infrastructural development.

Lessons from China’s Illustration

As the world’s most populated country, China took advantage of it human resource alongside a catch-up development strategy by employing modern technology, state induced growth and other strategies to propel growth (Wong, 2004). Since the 1980s, China experienced incredible success with their development strategy, recording a remarkable near 10 percent annual growth. The last two decades China has maintained the position of the global economic powerhouse (Gregory, 2002), making China a perfect example of the developmental state. The stated-induced growth has reheated the discourse on the role of the state in transformative economic development; this section will raise issues pertaining to China’s experience.

Critic of the developmental state model laid emphasis on it one-sided approach of economic development at all cost which could sometimes exceeds other factors of development such as equality, child labor and social welfare (Polidano, 2001).

Chang (1997) compared the developmental model as represented by the Japan postwar with the American postwar era, it was noted that the model as implemented by Japan focused on factors such as promoting productivity, technology improvement and encouraging efficient structural change, while the latter emphasized on resource allocation, static production and equity.   Globalization has shifted the pattern of state involvement in economic matters from direct to indirect involvement. National actions are becoming more and more indirect putting more responsibilities on institutional support thus the demand for strong and efficient institutions.

Furthermore, economic policies tend to be more flexible favoring private ownership; therefore, privatization has become a tendency. It can be argued that these transitions affect creating a balance between the state and the private sector thus reducing the primacy of the state; this assumption is arguable as the case of China makes it apparent that minimizing state power does not necessarily mean undermining its supremacy. For example in China, at the inception of developmental state, even small hair dressing businesses were owned by the state.  The International Corporation report (Garnaut et al., 2005) states, that Chinese SOEs industrial firm had undergone drastic reduction between 1996 and 2003 by 85% going from 114,000 to 34,000.  However, China’s economy continued to growth indicating the private sector’s willingness to collaborate with the state to achieve a common goal thus the continued growth.

Although, this worked for China, developmental state model does not guarantee success in practice. Thus, challenges observed in various replication attempts, for example, India, Latin America, and France. Argument supporting developmental state could argue that occasional failures cannot be used as a weapon to discredit the developmental state model. It is undeniable that the developmental state model does not perform well in all the scenarios, but denial of its function because of this reason could be inaccurate as the unsuccessful attempt could be attributed to factors such as suitable social, cultural and historical features and conditioning (Douglass, 1994). Although Douglass (1994) supports the notion that developmental state is not replicable, he also proposes that these factors are not common in other states seeking to replicate the model but that lessons can be learnt.

The developmental state model is not fossilized but adaptive as success of China and other East Asian nations provides positive examples that it is achievable with the presence of certain enabling factors and positive collaboration between the state, private sector and the non-state actors.

Finally, a successful import of developmental state model should focus on specific circumstance and adjust to the specific reality. Therefore, examples should not be replicated, but experiences and lessons can be learnt and built upon.

My Conclusion is as follows

Developmental state model is not a static theory but a continuous evolution, evolving by internal and external factors.  Economic development is a good starting point of understanding this model however; it has become evident that development encompasses other factors beside market components. Replicating the developmental state in contemporary times is impossible as societal and market dynamics have changed. For example the OECD and financial institutions have moved from empowering states to induce growth; embedded liberalism to encouraging privatization by interfering in market patterns (Bello, 2005; Ruggies, 1982; Ling, 2002).

Furthermore, states attempting to replicate the success of the Asian Tiger operate in a different social and political setting which affects the market outcomes. Perhaps the cold war attributed to the success of the Asian Tiger as it allowed these Asian states to interfere with market as at that time, the states were more focused on balancing circulation power as opposed to inconsequential economic activities (Onis, 1991).

Also, authoritarian government which is more suitable for regulating market structures and ensuring strong and effective institutions at the initial stages is no longer tolerable in contemporary times as evidence in the case of Libya.

Considering the factors associated with the state led developmental model, it is save to ascertain that replicating the developmental state is challenging in contemporary times and also that the success of the ‘Asian Tigers’ and China is (was) as a result of the business environment in these countries aligning with the economic and development strategy and ultimately acquiesced in the states’ role of regulating private firms to be in line with such strategy.

About rebeccaidd

Fun, passionate, inquisitive exploring development
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4 Responses to Lets talk about this; there will never be another China

  1. Ven says:

    Good stuff, well researched and articulated.
    But Rebecca, as much as I agree with you, I believe that it is the responsibility of the state to induce growth and foster development by building strong public institutions, investing heavily in infrastructures and human capacity building (education), institutionalizing development policies and come up with strong regulations for that will govern and guarantee property rights of individuals.
    What America and Europe, who have been pushing the rest of the World in the direction they should go, are doing now is to induce growth so as to create jobs for their people by intervening in the market directly or indirectly. When there is no oversight and/or strong regulations governing the market, corporations can plunge a whole nation (or even the world) into economic crisis like what has happened between 2008 and now, which America and Europe are yet to recover from.
    Who knows what would have happened if Obama had not intervened in the auto industry in the United States….

  2. rebeccaidd says:

    I completely agree, am an advocate for strong state, that’s the essence of this post however, what work in China wont work for other developing countries for reasons discussed in the post…

  3. Tomlin Christian says:

    I am officially stalking Rebecca am on her twitter, facebook and she still wont bulge replying my messages .. I love all your perspectives, I like that you are very beautiful and intelligent please can you respond to my messages please? I am white, 33 and I have been living in Lagos since 2011, I really want to know you Please

  4. Pingback: Lets talk about this; there will never be another China | YNaija OPINION

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