Lecture 4: The role of the state

Question 1

Definition: State

Answer 1

The monopoly on the legitimate use of force (Weber): territorial control, centralized authority, and sovereignty

Question 2

The murder rate is lower in

Answer 2

State societies than non-state societies

Question 3

The state reduces

Answer 3

Internal violence by disarming citizens, licensing arms, and punishing violence

Question 4

3 reasons why a centralized state is essential for development

Answer 4

1. Maintaining peace
2. Enforce institutional rules (e.g. inclusive economic and political institutions)
3. Delivering public services

Question 5

How are centralized states formed?

Answer 5

Through war (Tilly) - offering money for protection, centralized structure to collect the money

Question 6

The predatory state - 5 points about the role of the state

Answer 6

The state is the problem:
1. Extractive economic institutions
2. Captured by private, elite interests
3. Corruption, patronage
4. Keeping people poor to maintain control
5. The state lacks autonomy from political pressures (politicians and bureaucrats)

Question 7

Key concept in the predatory state

Answer 7

Patrimonalism: power centralized around a single ‘big man’, personal relations and violence

Question 8

The bloated state

Answer 8

A kind of predatory state with:
1. Patronage recruitment enlarged buraucracies (state expands and expands, extracting more money to pay bureaucrats)

2. Extracting resources from the rural poor
3. Subsidies/import substitution allow inefficient industries to survive

Question 9

How is the predatory state for development

Answer 9

Bad!

Question 10

Monopsony

Answer 10

Only one buyer - in predatory state, the buyer is the government who can set a very low price

Question 11

Definition: neoliberalism

Answer 11

The idea that free markets and a small non-interventionist state promote development

Question 12

The neoliberal state: role of the state

Answer 12

The state is the problem

Question 13

The neoliberal state: What is the solution to the state problem - 4 points?

Answer 13

1. Insulating the state from political influence
2. Getting the prices right to allocate resources
3. A smaller state
4. Minimalist interpretation of inclusive economic institutions (do the minimum to achieve it)

Question 14

The Washington Consensus was imposed through

Answer 14

Conditionalities for loans in the 1970s oil shocks and debt crises

Question 15

2 specific ways the Washington Consensus failed in developing countries?

Answer 15

1. Median growth in developing countries in 1980s was 0%
2. Social disaster as social spending (education, infrastructure, health) were cut

Question 16

Is there a relationship between property rights and growth?

Answer 16

Not if we exclude Western countries; suggests growth leads to market institutions and not the other way around

Question 17

What went wrong with the neoliberal state - 5 points?

Answer 17

1. Free markets were not enough to support investments (didn’t decrease risks of investment)
2. Small states lacked capacity to make the markets work (e.g. preserving competition, coordinating investment) and protect citizens from transitional costs
3. A rent-seeking state can’t shrink itself - only the already rich and corrupt bureaucrats could buy things being sold by privatization, thus keeping them in power
4. IMF and WB pursued neoliberalism ideologically, meaning as an end in itself, not a means to development, and social consequences were thus overlooked
5. Maintaining political support for reform is necessary, not an afterthought

Question 18

Definition: the developmental state

Answer 18

A state where markets are coordinated and guided by an active, interventionist, disciplined state

Question 19

3 points about the role of the state in the developmental state

Answer 19

The state is the solution:
1. Economic institutions remain inclusive (protected property rights, markets as engine of growht)

2. State is more capable and active in promoting investment and delivering public services
3. Maximalist interpretation of inclusive economic institutions

Question 20

2 typical characteristics of the developmental state

Answer 20

1. Bureaucrats stop subsidies to slow-growing firms
2. Bureaucrats regularly hold private meetings with the country’s wealthiest industrialists

Question 21

3 characteristics of growth-enhancing governance

Answer 21

Policies combine an ‘active’ state with a ‘disciplined’ state:
1. Temporary subsidies to growing sectors
2. Conditional import-substitution (until sector becomes competitive)
3. Coordinating investments and technology transfer

Question 22

The dilemma of the developmental state

Answer 22

A large, active state is needed to promote investment, but they are vulnerable to political pressure and can easily relapse into the predatory state.

Question 23

How to solve the dilemma of the developmental state

Answer 23

Through autonomy from political pressures:
1. A rational, Weberian bureaucracy
2. Meritocracy in recruitment, promotion
3. Impartial rule-based procedures

Question 24

But sometimes autonomy is not enough (India) - what do we need then?

Answer 24

The state needs to be embedded in society to gather information and coordinate investments, have links to the private sector

Question 25

But too much embeddedness generates

Answer 25

Corruption, clientelism, and rent-seeking (Brazil 1990s)

Question 26

How do we solve the autonomy vs. embeddedness problem?

Answer 26

Through ‘embedded autonomy’ -> state is connected to the public and private sector, but have autonomy to prevent corruption

Question 27

What 4 political conditions generate states with ‘embedded autonomy’?

Answer 27

1. A history of Weberian bureaucracy and indigenous state-building
2. Disempowerment of large landowners (e.g. WW2)
3. A dominent, cohesive elite
4. External threats that align elite interests with development (threat of invasion/survival)

Question 28

Thus, for embedded autonomy we need a specific type of

Answer 28

Political relationship between the state, elites, and society