The Role of the State Flashcards
Definition of the state
The monopoly of the legitimate use of force
- Territorial control
- Centralized authority
- Sovereignty
How does state creation affect internal violence and why?
As soon as we start creating states the homicide rate drops
- A 10-fold reduction from 1200 to 1984
- Disarming citizens
- Licensing arms
- Punishing violence and private war
Why is a centralized state essential for development?
- Maintaining peace
- Enforcing institutional rules
- Delivering public services
Where do centralized states come from?
- War makes states and states make war
- An extortion racket: “give us money and we will protect you”
How can conflict contribute to long run development? Where is this / this not the history?
- If it allows one faction to dominate and build a centralized state
- This is the history of Europe (many factions fighting until one faction has enough power to completely control its territory)
- This is not the history of Africa
– Artificial, arbitrary borders lumping together multiple (sometimes hostile) groups
Characteristics of the predatory state
- The state is the problem
- Patrimonialism
- The bloated state
- The state lacks “autonomy” from political pressures
How is the state the problem in a predatory state?
- Extractive economic institutions
- Captured by private, elite interests
- Corruption, patronage
- Keeping people poor to maintain control
What is patrimonialism in a predatory state?
- Power centralized around a single “big man”
- Personal relations and violence
What is a bloated state (predatory states)?
- 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
Definition of neoliberal
The idea that free markets and a small non-interventionist state promote development
Characteristics of the neoliberal state
- The state is the problem
- Minimalist interpretation of inclusive economist institutions
- The Washington Consensus / Structural adjustment
What is the solution to the state being the problem (neoliberal state)?
Insulating the state from political influence
- A smaller state
- “Getting the price right”
– Leave it to the market
Requirements of the Washington Consensus / Structural adjustment
- Fiscal discipline
- Subsidies only for public goods
- Tax reform
- Market interest rates (float)
- Competitive exchange rates (float)
- Commercial liberalization
- Liberalizing FDI
- Privatization of state enterprises
- Deregulation
- Protecting property rights
Who implemented the Washington Consensus and when/why?
Implemented by World Bank and IMF
- Oil shocks and debt crises provided the opportunity to impose the Washington Consensus through conditionalites
How did the Washington Consensus fair?
But the Washington Consensus failed
- The “lost decade” of the 1980s
- Median growth in developing countries in the 1980s: 0.0%
Cochabamba Water War, Bolivia, 1992-2000 (Washington Consensus effects)
- Poor water supply
- Privatization
- Price rises
- Protests
- Continued poor water supply
What went wrong with the neoliberal state?
- Free markets were not enough to support investment
- Small states lacked capacity
- A rent-seeking state can’t shrink itself
- IMF and World Bank pursued Neoliberalism ideologically
- Maintaining political support for reform is necessary (not an afterthought)
Free markets were not enough to support investment (what went wrong with the neoliberal state)
- 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
Small states lacked capacity to… (what went wrong with the neoliberal state)
- Make markets work, eg. regulating competition, coordinating investments
- Deliver public goods
- Protect citizens from the transnational costs
A rent seeking state can’t shrink itself (what went wrong with the neoliberal state)
Privatization generated new interests and rent-seeking
- … they could steal today much of what would have been skimmed off by future politicians
IMF and World Bank pursued Neoliberalism ideologically (what went wrong with the neoliberal state)
- As an end, not a means to development
- Social consequences were overlooked
Definition of the developmental state
A state where markets are coordinated and guided by an active, interventionist, discipline, state
Typical characteristics of the developmental state
- Bureaucrats stop subsidies to slow-growing firms
- Bureaucrats regularly hold private meetings with the country’s wealthiest industrialists
- ~Firms that lobby for policy benefits are accomodated (can be fine, watch out for predatory state behavior)
- The elite all went to the same school / university
How is the state the solution in developmental states?
- Economic institutions are still “inclusive”
– Property rights are 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
Growth-enhancing governance (developmental states)
Policies combine an “active” state with a “disciplined” state
- Temporary subsidies to growing sectors (land, credit, foreign exchange)
- Conditional import-substition
- Coordinating investments and technology transfers
– eg. Taiwan’s textile entrustment scheme - early subsidies and protection were removed once the industry became internationally competitive
The dilemma of the East Asian model of developmental states
- A large active state is needed to promote investment
- But large, active states are vulnerable to political pressure
– Easy relapse into rent-seeking and the predatory state
We still need autonomy from political pressures
What does autonomy from political pressures entail?
- A “rational” “Weberian” bureaucracy
- Meritocracy in recruitment, promotion
- Impartial rule-based procedures
Why was autonomy not enough in India (developmental state)
- Bureaucrats had no idea about the many challenges of growing an industry
- Businesses had no way of coordinating their investments
- The “license raj”
- Opening a new business required authorization from ~80 agencies
What does a developmental state require in addition to autonomy and what does this entail?
Embeddedness
- Inducing investment requires understanding and minimizing private risks
- Acts as a source of information and means of coordinating investments
- Networks and links to the private sector
– Gakabatsu: network of alumni from the same uni
– Amakudurai: “revolving door” from civil service to private sector
– Industrial associations, corporatism
What can happen with too much embeddedness (and example)
It can generate corruption
- Brazil in the 1990s
– Politicians convinced bureaucrats to overcharge for ambulances
– Public funds diverted for vote-buying
– Public jobs promised to supporters
What political conditions generate state with embedded autonomy?
- A history of Weberian bureaucracy and indigenous state-building
– Autonomy - Disempowerment of large landowners
– Autonomy - A dominant, cohesive, elite
– Embeddedness - External threats that align elite interests with development
– Incentivizing investments
What is necessary for effective development beyond specific institutional rules?
Effective development requires a specific political relationship between bureaucrats, politicians, and the private sector, as well as power and enforcement mechanisms.
Which political systems can produce “Embedded Autonomy,” and what are examples of countries that achieved this?
Both authoritarianism and democracy can produce Embedded Autonomy. Examples include Japan and Botswana, which were democratic but had dominant-party systems.
Which developing country is cited as having the right conditions to become a Developmental State today, and why?
Rwanda is cited as an example due to its rapid growth, declining poverty, improved life expectancy, and characteristics similar to successful Developmental States like South Korea and Japan.
