Developmental state

Developmental state, or hard state, is a term used by international political economy scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia in the late twentieth century. In this model of capitalism (sometimes referred to as state development capitalism), the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterized by having strong state intervention, as well as extensive regulation and planning. The term has subsequently been used to describe countries outside East Asia which satisfy the criteria of a developmental state. Botswana, for example, has warranted the label since the early 1970s.^[1] The developmental state is sometimes contrasted with a predatory state or weak state.^[2]

The first person to seriously conceptualize the developmental state was Chalmers Johnson.^[3] He wrote in his book "MITI and the Japanese Miracle":

In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developmental functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of business-government relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates.

A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market. In contrast, a developmental state intervenes more directly in the economy through a variety of means to promote the growth of new industries and to reduce the dislocations caused by shifts in investment and profits from old to new industries. In other words, developmental states can pursue industrial policies, while regulatory states generally can not.

As in the case of Japan, there is little government ownership of industry, but the private sector is rigidly guided and restricted by bureaucratic government elites. These bureaucratic government elites are not elected officials and are thus less subject to influence by either the corporate-class or working-class through the political process. The argument from this perspective is that a government ministry can have the freedom to plan the economy and look to long-term national interests without having their economic policies disrupted by either corporate-class or working-class short-term or narrow interests.

Characteristics of the Developmental state

• Emphasis on market share over profit
• Economic nationalism
• Protection of fledging domestic industries
• Focus on foreign technology transfer
• Large government bureaucracy
• Alliance between the state, labour and industry called corporatism
• Skepticism of neoliberalism and the Washington Consensus
• Prioritization of economic growth over political reform
• Legitimacy and Performance
• Emphasis on technical education^[4]

Examples of Developmental States in East and Southeast Asia

Some of the best prospects for economic growth in the last few decades have been found in East and Southeast Asia.^[3] China, South Korea, Japan, India, Thailand, Taiwan, Vietnam, Malaysia, Singapore, Philippines, and Indonesia are developing at high to moderate levels. Thailand, for example, has grown at double-digit rates most years since the early 1980s. China has been the world leader in economic growth since 2001. In 2010, India's growth finally overtook China's. It is estimated that it took England around 60 years to double its economy when the Industrial Revolution began. It took the United States around 50 years to double its economy during the American economic take-off in the late nineteenth century. Several East and Southeast Asian countries today have been doubling their economies every 10 years.^[5]

It is important to note that in most of these Asian countries, it is not just that the rich are getting richer, but the poor are becoming less poor. For example, poverty has dropped dramatically in Thailand. Research in the 1960s showed that 60 percent of the people in Thailand lived below a poverty level estimated with cost of basic necessities. By 2004, however, similar estimates showed that poverty there was around 13 to 15 percent. Thailand has been shown by some World Bank figures to have had the best record for reducing poverty per increase in GNP of any nation in the world.^[6][7][8]

When viewed through the lens of dependency theory, developmentalism is about countries such as Thailand, Taiwan, Malaysia, South Korea, and increasingly Vietnam, where the governments are able and willing to protect their people from the negative consequences of foreign corporate exploitation. They tend to have a strong government, also called a developmental state or hard state and have leaders who can confront multinationals and demand that they operate to protect their people’s interests. These “development states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they may follow domestically-mandated standards for pay and labor conditions, pay reasonable taxes, and by extension leave some profits within the country.

Specifically, what is meant by a developmental state, is a government with sufficient organization and power to achieve its development goals.^{[9][10][11][12]} There must be a state with the ability to prove consistent economic guidance and rational and efficient organization, and the power to back up its long-range economic policies. All of this is important because the state must be able to resist external demands from outside multinational corporations to do things for their short-term gain, overcome internal resistance from strong groups trying to protect short-term narrow interests, and control infighting within the nation pertaining to who will most benefit from development projects.

Thailand

In the late 1990s a study was conducted in which the researchers interviewed people from 24 large factories in Thailand owned by Japanese and American corporations. They found that most of the employees in these corporations made more than the average in Thailand, and substantially more than the $4.40 a day minimum wage in the country at the time. The researchers’ analysis of over 1,000 detailed questionnaires indicated that the employees rate their income and benefits significantly above average compared to Thai-owned factories. They found the working conditions in all 24 companies far from conditions reported about Nike in Southeast Asia.^[13]

One answer to the discrepancies found between multinational corporations in Thailand and the conditions described for Nike workers is that companies such as Wal-Mart, The Gap, or Nike subcontract work to small local factories. These subcontractors remain more invisible, making it more easy to bribe local officials to maintain poor working conditions. When multinational corporations set up business in countries like Malaysia, Taiwan, or Thailand, their visibility makes much less likely employees will have wages and conditions below the standards of living of the country.^[14]

Thailand is said to fall between the U.S. model where government has little involvement in economic policy, and Japan which has governed with a very heavy hand for more than 100 years.^[15][16] One focus of Thai development policies was on import substitution. Here, a development state must be able to tell multinational corporations that goods will be imported, if at all, with tariffs as high as 80 to 150 percent to prevent these goods from competing with goods made in (at least at first) less efficient infant factories in the poorer country. Only a development state can have the influence to enforce such a policy on rich multinational corporations (and their governments), and only a development state can have the influence to enforce such a policy against the demands of their own rich citizens who want the imported goods and want them then at a cheaper price, not waiting for infant industries to produce suitable products. Thailand began placing tariffs of 150 percent on important automobiles, but at the same time telling the foreign auto industries that if they came to Thailand to create joint ventures with a Thai company to build cars—and thus hire Thai employees, pay Thai taxes, and keep some profits within Thailand—the auto company would get many forms of government assistance.^[15]

Thailand continued to protect its economy during the 1980s and 1990s despite the flood of foreign investment the nation had attracted. Thai bureaucrats started rules such as those demanding a sufficient percentage of domestic content in goods manufactured by foreign companies in Thailand and the 51 percent rule.^[15] Under the 51 percent rule, a multinational corporation starting operations in Thailand must form a joint venture with a Thai company. The result is that a Thai company with 51 percent control is better able to keep jobs and profits in the country. Countries such as Thailand have been able to keep foreign investors from leaving because the government has maintained more infrastructure investment to provide good transportation and a rather educated labor force, enhancing productivity.

Local Developmental State

While the developmental state is associated with East Asia, it has been argued that after 30 years of many negative experiences with the Washington Consensus, similar structures began to appear in Latin America.^[17] The "Latin American" approach is different, however, as it often takes place at a city/municipal level, rather than at a state level and places a great emphasis on tackling social exclusion. One pioneer in this experience has been Medellin, whose experience with a local development state has been highly praised by researchers at the Overseas Development Institute.^[17] Medellin's city administration used its ownership of city's main energy provider Empresas Publicas de Medellín (EPM) and diverted 30% of EPM's profits to fund municipal spending. The spending went partly on a variety of infrastructure projects, such as the city's metro, bus network and a cable car system connecting the poorer barrio communities to the city centre.^[17] However, the city also developed a program of cash grants called 'the Medellín Solidaria' programme that are very similar to Brazil's highly successful Bolsa Familia that provide support for poor families. Additionally, the city developed the Cultura E programme that established a network of 14 publicly-funded business support centres known as CEDEZO, Centros de Desarrollo Empresarial Zonal.^[17] The CEDEZOs are found in the poorest areas of Medellin and support the poor in developing business by providing free-of-charge business support services and technical advice.^[17] Also, as part of Cultura E, there is Banco de las Oportunidades that provides microloans (up to $2,500 at a cheap interest rates 0.91% monthly).^[17] This has helped create more equal opportunities for all and overcome the barriers to entry to business for poor entrepreneurs with good ideas, but lacking capital, skills and connections.^[17] It has also helped develop the local economy with new micro-enterprises.^[17] However, several mayoral candidates for the October 2011 elections have argued the Banco de las Oportunidades's interest rates are too high, loan maturity is too short and it should have grace periods.^[17] They therefore suggest a new small and medium-sized enterprise (SME) development bank to complement the Banco de las Oportunidades.^[17]

Difficulties

There are difficulties with the local development state model. Despite claims at the end of the 1980s by some, such as Hernando de Soto (1989) that micro-enterprises would lead economic growth, this has not come to pass.^[17] For instance, in Medellín the informal sector has seen a huge growth in micro-enterprises, but the impact on poverty and development has been minimal.^[17] Almost none of these microenterprises have evolved into informal small or medium businesses, as the demand does not exist to absorb increased production.^[17] In other words, a successful ice-cream producer producing 30 ice-creams per day at home may sell all their product and make a livelihood out of it, but transforming it into a business, incurring the costs of mechanisation in order to produce perhaps 300, may not be worthwhile if there is no demand for so many ice-creams.^[17] Failure rates are very high and the debt incurred by owners becomes unmanageable.^[17] Recognising which micro-enterprises have a high potential is extremely difficult and the costs involved in providing business support and advise are very high.^[17] There is a great difficulty in identifying demand, especially on a global level and demand patterns are constantly changing.^[17] The limited ability of city administrations to gather enough resources to support businesses and make sound investments can be problematic.^[17]

Public Recognition

Despite all the evidence of the importance of a development state, some international aid agencies have just recently publicly recognized the fact. The United Nations Development Program, for example, published a report in April 2000 which focused on good governance in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance, reliance on trickle-down economic development and a host of other strategies will not work.”^[18]

See also

• Dirigisme
• Economic development
• Economic interventionism
• Four Asian Tigers
• Good governance
• International political economy
• Japanese post-war economic miracle
• Poverty reduction
• State capitalism

References

1. ^ Leftwich, Adrian, “The Developmental State”, Working Paper No. 6, University of York,1994
2. ^ Evans, Peter. 1995. Embedded Autonomy: States and Industrial Transformation. Princeton: Princeton University Press.
3. ^ ^{a b} Leftwitch, Adrian, "Bringing politics back in: Towards a model of the developmental state", Journal of Development Studies, Volume 31, Issue 3 February 1995, pages 400 - 427
4. ^ Marwala, Tshilidzi. 2009. Foundations for a Developmental State: A case for technical education arXiv:0907.2019v1
5. ^ Kristof, Nicholas D., and Sheryl WuDunn. 2000. Thunder From the East: Portrait of a Rising Asia. New York: Knopf.
6. ^ Nabi, Ijaz, and Jayasankur Shivakumer. 2001. Back from the Brink: Thailand’s Response to the 1997 Economic Crisis. Washington, DC: World Bank.
7. ^ United Nations Development Report. 1999. Human Development Report of Thailand 1999. Bangkok: Author.
8. ^ World Bank. 2000. World Development Report 2000/2001. New York: Oxford University Press.
9. ^ Chang, Ha-Joon. 1999. “The Economic Theory of the Developmental State.” Pp. 182-199 in Meredith Woo-Cumings (ed.), The Developmental State. Ithaca, NY: Cornall University Press.
10. ^ Cumings, Bruce. 1999. “Webs with No Spiders, Spiders with No Webs: The Genealogy of the Developmental State.” Pp. 61-92 in Meredith Woo-Cummings (ed.), The Developmental State. Ithaca, NY: Cornall University Press.
11. ^ Johnson, Chalmers. 1982. MITI and the Japanese Miracle. Stanford, Calif.: Stanford University Press.
12. ^ Pempel, T.J. 1999. “The Developmental Regime in a Changing World Economy.” Pp. 137-181 in Meredith Woo-Cummings (ed.), The Developmental State. Ithaca, NY: Cornall University Press.
13. ^ Richter, Frank-Jurgen. 2000. The Asian Economic Crisis. New York: Quorum Press.
14. ^ Kerbo, Harold. 2006. World Poverty in the 21st Century. New York: McGraw-Hill.
15. ^ ^{a b c} Muscat, Robert J. 1994. The Fifth Tiger: A Study of Thai Development. Armonk, NY: M.E. Sharpe.
16. ^ Kulick, Elliot, and Dick Wilson. 1996. Time for Thailand: Profile of a New Success. Bangkok: White Lotus Press.
17. ^ ^{a b c d e f g h i j k l m n o p q r} Milford Bateman, Juan Pablo Duran Ortíz and Kate Maclean 2011. A post-Washington consensus approach to local economic development in Latin America? An example from Medellín, Colombia. London: Overseas Development Institute
18. ^ United Nations Development Report. 2000. Overcoming Human Poverty: UNDP Poverty Report 2000. New York: United Nations Publications.

Sources

• Meredith Woo-Cumings. (1999). The Developmental State. Cornell University Press.
• Peter Evans. (1995). Embedded Autonomy: States and Industrial Transformation. Princeton: Princeton University Press. Ch. 1.
• Polidano C. (2001). Don’t Discard State Autonomy: Revisiting the East Asian Experience of Development. Political Studies. Vol. 49. No.3. 1: 513-527.
• Ziya Onis. (1991). The Logic of the Developmental State. Comparative Politics. 24. no. 1. pp. 109–26.
• Mark Thompson. (1996). Late industrialisers, late democratisers: developmental states in the Asia-Pacific. Third World Quarterly. 17(4): 625-647.
• John Minns. (2001). Of miracles and models: the rise and decline of the developmental state in South Korea. Third World Quarterly. 22(6): 1025-1043.
• Joseph Wong. (2004). The adaptive developmental state in East Asia. Journal of East Asian Studies. 4: 345-362.
• Yun Tae Kim. (1999). Neoliberalism and the decline of the developmental state. Journal of Contemporary Asia. 29(4): 441-461.
• Linda Weiss. (2000). Developmental States in Transition: adapting, dismantling, innovating, not 'normalising'. Pacific Review. 13(1): 21-55.
• Robert Wade. (2003). What strategies are viable for developing countries today? The World Trade Organization and the shrinking of 'development space'. Review of International Political Economy. 10 (4). pp. 621–644.

Further reading

• Johnson, Chalmers (1982). MITI and the Japanese Miracle. Stanford, CA: Stanford University Press. ISBN 0804712069. 
• Kulick, Elliot; Dick Wilson (1996). Time for Thailand: Profile of a New Success. Bangkok: White Lotus Press. 
• Muscat, Robert (1997). The Fifth Tiger: A Study of Thai Development. Armonk, NY: M.E. Sharpe. ISBN 1563243245. 
• Woo-Cumings, Meredith (1999). The Developmental State. Ithaca, NY: Cornell University Press. ISBN 0801485665. 

External links

• Zaibatsu Dissolution, Reparations and Administrative Guidance.