Lecture 4: the role of the state

Question 1

The state

Answer 1

Definition: the State “The monopoly on the legitimate use of force” (Weber 1918)
- Territorial control
- Centralized authority
- Sovereignty
The enforcement in practice: police and military
Nonstate societies higher rates of violence

Question 2

The State reduces internal violence (Tilly 1975)

Answer 2

• A 10-fold reduction from 1200 to 1984
• Disarming citizens
• Licensing arms
• Punishing violence and ‘private war´

Question 3

A centralized state is essential for development

Answer 3

• Maintaining peace
• Enforcing institutional rules
• Delivering public service
• Where do centralized states come from?
• “War makes States and States make War”(Tilly 1975) (villages come into contact start to fight, raise taxes start and armies and ultimately led to world cities, state armies etc)
• An Extortion racket: “Give us money and we will protect you” (soldiers have the monopoly on violence and want money otherwise they stop)
  Only the history of Europe  consolidation of states

Question 4

Conflict might contribute to long-run development

Answer 4

• If it allows ONE faction to dominate and build a centralized state however this in only in EUROPE
  in Africa:

Question 5

the state is the problem

Answer 5

Predatory state
Extractive Economic InstitutionsCaptured by private, elite interestsCorruption, patronage

Question 6

Patrimonial Predatory State

Answer 6

Power centralized around a single ‘big man’Personal relations and violence

Question 7

Bloated Predatory State

Answer 7

• Patronage recruitment enlarged bureaucracies
  -Public salaries > Private salaries
• Extracting resources from the rural poor
  -Eg. Kenya’s monopsony coffee purchases at low prices
• Subsidies/Import substitution allowed inefficient industries to survive
• The state lack´s autonomy from political pressure

Question 8

Neoliberalism

Answer 8

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

Question 9

The Neoliberal State

Answer 9

• The State is the problem
• The Solution: Insulating the state from political influence
  -A smaller state
  -‘Getting the prices right’ (vraag en aabod)
• Minimalist interpretation of Inclusive Economic institution (state should do as little as possible to generate investments)

Question 10

What went wrong with the Neoliberal State?

Answer 10

What went wrong with the Neoliberal State?
1. Free markets were not enough to support investment (Khan 2007)
* The absence of the State is not the market
* The risks for private investment were simply too great (low wages, but lower productivity)
* Protecting property rights is expensive
Too risky
2. Small states lacked capacity (Stiglitz 2002)
* To make markets work, eg. regulating competition, coordinating investments
* To deliver public goods
* To protect citizens from the transitional costs
3. A rent-seeking state can’t shrink itself
* Privatization generated new interests and rent-seek
The process of liberalization and privatization was in the interest of the elite.
4. IMF and World Bank pursued Neoliberalism ideologically
* As an end, not a means to development
* Social consequences were overlooked
5. Maintaining political support for reform is necessary
* Not an afterthought!
Have to anticipate on the politics (acceptability and durability so protest etc don’t happen)

Question 11

The Developmental State

Answer 11

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

Question 12

The State is the solution

Answer 12

• Economic institutions are still ‘inclusive’
• Property rights are still protected
• Markets are still the engine of growth
• But the State is more active in promoting investment and delivering public services
• East Asia suggests this is possible without democracy
• Maximalist interpretation of Inclusive Economic institutions

Question 13

Growth-enhancing governance

Answer 13

• Policies combine an ‘active’ state (in economic growth) with a ‘disciplined’ state
• Temporary subsidies to growing sectors (land, credit, foreign exchange)
• Conditional Import-substitution
• Coordinating investments and technology transfer
• Eg. Taiwan’s Textile Entrustment Scheme – early subsidies and protection were removed once the industry became internationally competitive
• Unlike in eg. Pakistan, where subsidies were maintained regardless of performance
• ‘Growth-enhancing governance’ matters, not just protecting property rights

Question 14

we still need Autonomy from political pressures:

Answer 14

• A ‘rational’, ‘Weberian’ bureaucracy
• Meritocracy in recruitment, promotion
• Impartial rule-based procedures
• Eg. The Indian Administrative Service

Question 15

Inducing investments also requires

Answer 15

• understanding and minimizing those private risks
• The state also needs to be ‘Embedded’ in society (Evans 1992)
• A source of information
• A means of coordinating investment
• Networks and links to the private sector

Question 16

What political conditions generate States with ‘Embedded Autonomy’?

Answer 16

1. A history of Weberian bureaucracy and indigenous state-building (since 788 in South Korea)
   -Autonomy
2. Disempowerment of large landowners (eg. by the Second World War)
   -Autonomy
3. A dominant, cohesive, elite (KMT in Taiwan, 1961 coup in South Korea, LDP in Japan)
   -Embededness
4. External threats that align elite interests with development (eg. Taiwan, South Korea)
   -Incentivizing Investment

We don’t just need specific institutional rules -Authoritarianism or Democracy can produce Embedded Autonomy
-Japan and Botswana - were democratic but dominant-party systems

We need a specific political relationship between bureaucrats, politicians and the private sector
Lacking in Latin America and Sub-Saharan Africa