Beyond the Developmental State

Industrial Policy into the Twenty-first Century

Ben Fine, Jyoti Saraswati, Daniela Tavasci, Ben Fine, Jyoti Saraswati, Daniela Tavasci

• Publisher: Pluto Press
• Year: 2013
• ISBN:
  9781849649018
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Moving beyond abstract economic models and superficial descriptions of the market, Beyond the Developmental State analyses the economic, political and ideological interests which underpin current socio-economic processes. Through this approach, the contributors show the close interrelation between states and markets in both national and international contexts. Drawing on a wide range of case studies and themes, the book exposes the theoretical and empirical limitations of the developmental state paradigm, offering alternatives as well as discussing the policy implications and challenges they raise. For scholars, students and practitioners of development, Beyond the Developmental State presents a decisive break with the old dogmas of both neoliberal orthodoxy and theories of 'market-imperfection', and outlines theoretically and empirically grounded alternatives.

1

Beyond the Developmental State: An Introduction¹

Ben Fine

1.1

INTRODUCTION

In their edited collection entitled Deconstructing Development Discourse: Buzzwords and Fuzzwords, Cornwall and Eade (2010) range over 30 or so entries that critically unpick the more prominent concepts that have been deployed in the study and practice of development. These include poverty reduction, social protection, globalisation, participation, citizenship, empowerment, social capital, gender, sustainability, rights, NGOs, social movements, country ownership, transparency, accountability, corruption, governance, fragile states, knowledge, and so on. ‘Developmental state’ is notably absent. Indeed, ‘state’ itself only appears as a heading within one entry: ‘fragile state’. This is not an oversight or error on the part of the editors, but a genuine reflection of the nature and extent to which the (developmental) state has been written in and out of development discourse by 30 years of neoliberalism. To put it crudely, the term ‘developmental state’ could not have been expected to become prominent, given that it is a point of critical departure from orthodoxy, and so unlikely to have been adopted, let alone promoted, by the World Bank.

Yet, whilst development and the state are everywhere in the Bank’s activities, the developmental state is nowhere. The contrast for the entry in the collection on ‘social capital’ (Fine 2010e) is striking, not least because of that concept’s heavy promotion by the World Bank at the close of the millennium and its use as a device to outflank and marginalise the adoption of the developmental state in the shift from the Washington Consensus to the post-Washington Consensus (Fine 1999, 2001). In the event, containing any potential radical content and implications of the post-Washington Consensus needed at most to draw only temporarily on the notion of social capital and, within the new millennium, it has been as rapidly abandoned as it was previously promoted by the World Bank (see Fine 2010a and 2011 for a full account and Bayliss, Fine and Van Waeyenberge 2011 for the trajectory of World Bank research more generally).

The limited influence of the developmental state paradigm (DSP, as we shall refer to it throughout this volume) is all the more unfortunate in light of the responses to the global crisis that broke from 2007. It might have been expected that one of the consequences of the crisis would have been to have shattered the confidence in neoliberal policymaking in general and for finance in particular, especially given the huge support given by ‘neoliberal’ states to private finance, which had been promoted so strenuously and had benefited from the liberalisation of financial markets. But, despite the role of the state in rescuing finance, reconsideration of its interventions on a grander scale across the economy has been extremely limited. Indeed, orthodox prescriptions of austerity have been adopted for all but the bankers.

Thus, despite the desperate need for alternatives, for developing and developed countries alike, these have not emerged; and, by the same token, the DSP has not prospered as buzz, fuzz or otherwise – something that might have been anticipated in the wake of the crisis, with the need to get the state and development, and not just finance, back on track. This is not to suggest that the DSP has remained stuck in a time warp of its own making, and of establishment neglect, arising out of the earlier experiences of success from the East Asian NICs. Indeed, the DSP has continued to evolve, as will be charted in this book. But how and with what influence are highly dependent on more general material and intellectual developments.

One thing in particular is notable: so successful has been the neoliberal project that, even in its crisis of legitimacy, the developmental state has with few exceptions failed to emerge as a prominent alternative as a response to, or in anticipation of, the crisis. The purpose of this book is less to explain why the developmental state should have failed in this way than to examine its strengths and weaknesses as an approach to development (without simply presuming that the approach has remained unpopular because of its weaknesses and despite its strengths – its failure has had much more to do with the stranglehold that neoliberalism has exerted over this field of study).

In this light, this Introduction proceeds in the next section by providing an overview of the DSP, pointing to two broad strands in the literature, known as the economic and political schools. This is followed in Section 1.3 by an account of, and explanation for, the extent to which the developmental state approach has been self-limiting. It has been unduly preoccupied with East Asian NICs, taking the Washington Consensus as point of departure; heavily confined to an inductive methodology, focusing upon development as a particular phase of industrialisation; and, within that, drawn to a narrow notion of industrial policy itself (especially, if not exclusively, of trade policy and directed finance). To some extent, the DSP cuts across the ‘flying geese’ paradigm, the more so as late latecomer developers insert themselves, or are inserted, into a global division of labour. The flying geese paradigm is critically assessed in Section 1.4, immediately followed in Section 1.5 by a discussion of the relationship between the potential for development and the impact of China both as exemplar (of a developmental state) and as a threat or opportunity to those who aspire to be a developmental state. That China is increasingly seen as a developmental state is indicative of the buzzword character of the DSP; this is more generally reflected in the most recent literature and discussed in Section 1.6. Further, the broader the DSP’s scope of application, the more both its previous limited scope of application and its limitations are exposed. Section 1.7 outlines an alternative approach to the DSP that draws critically, in part, upon the DSP literature as point of departure, offering a broader framework for the case studies that follow and the comparative lessons that can be drawn from them. And the final section concludes by pointing to the dilution and marginalisation of the DSP over the past 20 years, as reflected in the less than spirited response to the latest postures of the World Bank on approaches to development.

1.2

TWIXT ECONOMIC AND POLITICAL SCHOOLS

What is it that characterises a developmental state, and what makes it so? Answers to these apparently simple questions are elusive. This is not just because of denial of the potential for, or desirability of, the developmental state in deference to the market, in accordance with the Washington Consensus. For nor does the developmental state paradigm itself offer satisfactory responses. One reason for this is the tension between the universal applicability of the DSP (its analytical framework should apply everywhere, in principle, explaining, as required, both success and failure) and its frequent confinement in practice to examples of success.

This tension, and the way in which it has been resolved, is brought out by acknowledging that the DSP readily, if roughly, divides into two separate schools (as highlighted in successive surveys of the DSP literature: Fine and Stoneman 1996; Fine and Rustomjee 1996; Fine 2005, 2006, 2007, 2010b, 2010c; Ashman, Fine and Newman 2010a); each of these schools emphasises a different explanation of how successful development has been (or might be) achieved, this being the goal of the developmental state literature.²

For the first of these, the economic school, the focus is on those policies that are necessary for an economy to achieve development. Drawing primarily on the idea that markets do not work perfectly and, correspondingly, upon economics as a discipline, the state is required to accrue, for example, the economies of scale and scope, to coordinate investments within and across sectors, to harness positive and eliminate negative externalities, and so on. For the economic school, then, it is a matter of identifying the appropriate policies, with the presumption that they will, or might, be implemented by a developmental state because they ought to be.

By contrast, and completely complementarily, the political school, with its own disciplinary origins predominantly from within political science (and certainly separate from economics), is remarkably aloof from consideration of the economy itself and the nature of the policies required to bring about development. Rather, the political school is concerned with the nature of the state itself and whether it has the potential in general, and the independence in particular, to adopt the necessary developmental policies more or less irrespective of what these might be. Here emphasis is placed upon the necessity for the developmental state to be free of capture by particular interests, and so to be able to implement appropriate policies.

Taken together, the economic and political schools address what policies are to be adopted and what allows them to be adopted. Nevertheless, merging the two schools together does not lead to a satisfactory analytical framework, for reasons that will emerge below. However, successful cases of development in practice can be interpreted through this dual prism, and such is a major methodological thrust of both schools. For each has been highly inductive in practice, examining the role of economic policy in bringing about development and the nature of the states adopting such policies. This is not to suggest, however, that the developmental state literature has been without theory or analytical content. The economic school, for example, strongly emphasises the significance of market imperfections and the role of a developmental state in addressing (if not necessarily correcting) them. In highlighting the departure from neoliberalism, Amsden (1989) famously declared that it was a matter of ‘getting relative prices wrong’, of not conforming to the dictates of the market.³ In principle, the economic school could have drawn upon orthodox economics and its deductive methods, especially in its emphasis upon market imperfections. In practice, though, as indicated, it has been drawn towards more inductive case study methods, and it has generally been characterised by a mutual suspicion of orthodoxy even when the latter is itself based on market imperfections.⁴

Similarly, the political school has tried to identify empirically what characterises the nature of the states, and the societies containing them, in which development has proved possible. Posing this in terms of the independence of the state from economic and other interests has itself presumed an analytical approach in which society is structured along the lines of the state as opposed to the market, with the addition of civil society to fill out the remaining economic, political and ideological space. In this way, not only is the (developmental) state seen as potentially independent (the term favoured is ‘autonomous’); it is also perceived to evolve interests, an ethos, or practices of its own that prevail over those of the market and civil society, especially where these conflict with developmentalism. This approach of the political school is admirably captured in the notion of ‘bringing the state back in’ as an agent of development in its own right (Evans, Rueschemeyer and Skocpol 1985).⁵

Across both economic and political schools, then, there is a predilection to set up an opposition between state and market. For the economic school, the state overrules the market and so is able to improve upon it. For the political school, the state needs to stand aloof from the market, and the economic interests found within it. The result has been to downplay the role of class in the analysis (Radice 2008). With the economic school, considerations of class do not tend to appear at all; it is simply a matter of identifying the right policies, not whether they have sufficient support to be implemented, or on whose behalf, or to whose benefit. On the other hand, matters are not so simple for the political school. It is not that class interests are absent; but it is important that the state has the capacity to neutralise if not to override them. And, of overwhelming importance even if so much is taken for granted as to remain more or less unstated, there is a total preoccupation with the nation state and its capacity to bring about development irrespective of the impact of international or global factors.⁶ This does not mean that the global is absent; only that it needs to be incorporated as an influence on the policies to be adopted or the attainment of independence in policymaking that is either positive (availability of catch-up technology, for example) or negative (competition from imports).⁷

Such are the general characteristics of the economic and political schools; but the developmental state literature has a rhythm of greater or lesser prominence and a more detailed content that are in conformity with more general events and intellectual trends. Early traces of the economic school are to be found in the protectionism associated with Friedrich List in the nineteenth century; for the political school, developmentalism is associated with nation building through industrial and military strength.⁸ Latin American import substitution industrialisation from the 1930s until the 1980s is seen as successful (economic school), until radical populism placed undue burdens upon the state (political school).⁹ But the developmental state comes of age with the rise of the East Asian NICs in the post-war period. The classic case study derives from Johnson (1982) from within the political school, and emphasises the role played by the Japanese trade and industry ministry, MITI. Significantly, Johnson (2006), a former CIA analyst, admitted that this study had been motivated by support for the USA in its Cold War aspirations; he advised that, judging from the experience of Japan, the unrealistic and abstract propositions derived from neoliberalism would not bring about capitalist development and would make Soviet prescriptions more attractive (Johnson is particularly scathing of the propositions derived from mainstream economics).

But, although still acknowledged as a classic contribution that is unique in modern times in its message of the need for a powerful state agent to underpin industrialisation (and with a case study giving a close account of Japan as a latecomer), the ensuing literature on the developmental state focused its critical attention entirely upon the target of neoliberalism in general and the Washington Consensus in particular, whose own version of neoliberalism could only scarcely have been anticipated by Johnson just a few years before. By contrast, by the mid-1980s, inspired by the developmental successes of the East Asian NICs and the unremitting hostility to state intervention being displayed by both the World Bank and the IMF, the DSP became one of the two leading strands of criticism of the conditions being attached to these organisations’ offers of aid.¹⁰ Apart from Amsden’s (1989) study of South Korea’s industrialisation, Wade’s (1990) account of Taiwan’s, offering the mantra of ‘governing the market’, also rapidly became a classic.

The growing intellectual momentum of the DSP in the wake of the success of the East Asian NICs, and the incontrovertible evidence of extensive state intervention in these countries, was complemented by the growing sense of failure, indeed a crisis of legitimacy, of the Washington Consensus as the 1980s was appropriately seen as a lost decade as far as development elsewhere in the world was concerned. In the early 1990s, the Japanese funded a study to reassess the role of the state in the East Asian NICs. It had three good reasons to do so. First, the Washington Consensus denied the historical reality of its own latecomer success. Second, it was on the point of becoming the leading donor to developing countries. And, third, most important of all, its own industrial strategy, of contracting out less technology-intensive production to countries within the Asia–Pacific Rim, required for success that this be supported by appropriate local industrial policies. Japan could hardly be expected to continue to pay for policies that it knew both to be based on falsehood and to be against its own interests!¹¹

In the event, the World Bank’s (1993) report on the East Asian NICs proved a remarkable piece of intellectual acrobatics. It did not deny that the state had intervened extensively, but suggested that it had done so in a way that was ‘market-conforming’, doing what the market would have done had it been...