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The State as a Potential Agent

of TransformationIntroduction

Origins of the Neoliberal Paradigm

Government in the Process of Development

The Neoliberalism of Deepak Lal

The New Political Economy

An Assessment of the Neoliberal Theory of the StateEmbedded Autonomy

Depicting State Forms

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Introduction This chapter concentrates on the role of the state in the process of economic

transformation

1750 1840: Laissez-faire were urged by a group who was known as theManchester Liberals

1940s to the mid-1970s: Keynesian economics dominated policy-making- andeconomic theory

In the latter half of the 1970s: Counter-revolution in economics began to emerge inMargaret Thatchers Britain (1979 1990) and in Ronald Reagans USA (1980 1988)

The conference of the North and South to establish a New International EconomicOrder (NIEO) with the key agendas of 1) stabilizing the raw material prices and 2)

the enhancement of foreign aid spending from the developed nations Petro Dollar was made by the Organization of Petroleum Exporting Countries

(OPEC) (all are less developed countries) in confronting the transnationalcompanies (MNCs) by pushing up oil prices via a classical cartel arrangementwhich most of them squandered on grandiose development projects andconspicuous spending contributed to the debt crisis

By 1982, the debt crisis was in full swing as a result of recession which in turn

resulted in the rapid falling of oil prices hitting hard particularly the Latin Americanand African nations that had accumulated huge and unstable external debts

The new economic policies advocated by Thatcher and Reagan was giving ashape by a group of economists known as monetarists (also neo-liberals) whichinterpreted that the turmoil of the 1970s as largely the result of too muchgovernmental intervention in private markets

The Neo-Liberals: Their program were broader and more fundamental in advising

novel policy in all spheres of the economy than concentrating on only the growthrate of the money supply to control inflation and spur growth

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Origins of the Neo-Liberal Paradigm (Pg

194 198)

Started with Lord Bauer with a very different economicperspectivehe believed that the market harmonizesthe interests of all participants, everyone gains (a re-statement of Adam Smiths ideas)

The Free Market, export and the nature of Colonial Rule,

a Case Study of British West Africa: The British hadpursued a policy ofnative paramountcy (Can you findout what it is? pg 195) and he conducted his research inan area of the British Empire which was very atypicalwhere plantation-based or and/or mining enclaveeconomies were the rule, not the peasant-based export-

oriented structure Ethnicity and Race: Growth is due to both reliance on the

free market and intangible characteristics that is believedto be natural to certain ethnic groups (Racial and ethnictheories of development have been dismissed by careful

empirical research)

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Government in the Process of

Development

Bauers perspectives have been applied selectively bythe neo-liberals especially about the negative role ofgovernment on 3 main reasons about the public sector(Can you find out what the 3 reasons are?) (Pg 199)

Neo-liberals typically regard foreign aid and technicalassistance as extremely important instruments ofinfluence which can be utilized to impose their policieson less-developed nations or risk forgoing suchassistance of which the world bank and IMF also used

to great extend The neo-liberal analysis: The government is the root of

inefficiency (What do you think of Bauers idea of thegovernment?) (Pg 193 202)

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The Neo-liberalism of Deepak Lal

He tried to dismiss virtually the entire body of

thinking, analysis and research conducted by

the developmentalist and the heterodox

He attacked them on their emphasis onmacroeconomic considerations rather than on

microeconomics and the abandonment of the

theory of comparative advantage (What do you

think of Lals idea of governmental interventionin the economic affairs of a nation? Pg 204 -205)

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The New Political Economy

Anne Kruger: Her own work had concentrated on theeconomic waste and social distrust and instability whichoccur when the state has the capacity to redistributeincome to selected elements of society and attacked

the rent-seeking society (Do you still remember what itis?) (pg 205 206)

The factional state and rent-seeking behavior: Krugerssolution for rent-seeking is to

1. Sell off state owned firms (the shrinking of the state to a

minimum) by a process called privatization2. Eliminate tariffs and import licenses

3. End special subsidies

4. Eliminate any policy that might create gains for special interest

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An Assessment of Neo-liberal Theory of

the State This school of though has made a contribution to mainstream economic theory by

arguing that the state should not be treated as exogenous and given in constructing

economy theory and analysis but should be seen as endogenous to the economicsystem but the assumption that rents arise uniquely in the state is unwarranted

Also the assumption that in the private sector there exists perfect competition orenough workable competition to eliminate rent because perfect or good competitionneeds to flourish only in a circumstance where information (knowledge) issymmetrical (perfect) BUT participants in the market will have different access toinformation (asymmetric information)

Countries which have received the strongest inducement to shift toward neo-liberalism have fared rather poorly

Neoliberals have also falsely claimed that the Asian miracles of Taiwan, SouthKorea, Singapore and Hong Kong were models of free market which successfullydeveloped (Why do you think that the author of this book says so? Do you think thatthose economies have very little governmental interference? Pg 207 208)

Though, by forcing a reassessment of the role of the state, the neoliberals havemade a positive contribution to our understanding of the process of development

World Institute for Development Economics Research (WIDER) have found out thatgetting the prices right of which is the recommendation for the ills of les-developednations by the neoliberals is not enough (What does WIDER further recommend thatless-developed countries do? Pg 209)

According to wider STUDY: Public spending results in the crowding-in of private

investors (Do you know what does it mean? Pg 209)

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Embedded Autonomy Peter Evans: He identified 3 archetypes of the state

1. The Predatory State2. The Intermediate State

3. The Developmental State

The conceptualization is that states can vary, depending onthe historical evolution of specific societies; states are theresults of complex historical forces and relationship but theyare also actors or agents potentially capable of shaping andinfluencing the ongoing process of historical evolution

Structures and capacities deployed by the states serve asagents of societal transformation and growth a viable jointproject wherein civil society (the private sector) and the

state managers are able to constructively and dynamicallyinteract to engage in societal transformation

He did not present a dynamic analysis of why and how his 3archetypical states come into existence, perpetuated andmetamorphose from one archetype to another so he didntoffer a complete theory

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Embedded Autonomy 2 The Predatory State: There is endemic and structural appropriation

of unearned income via rent-seeking; no meritocracy; corruption is

endemic so that smart individuals may prepare for their own demiseby establishing secret bank accounts overseas for capital flight (Howdoes the government servants function and what is the rulingstructure?) (Pg 211 212)

The Intermediate State: There are inconsistencies where withinspecific sectors exhibit the features of the predatory state; also

exhibit pockets of efficiency where they demonstrateprofessionalism and competence in designing, promoting andcompleting imaginative and important projects jointly with theprivate sector or on their own through the state. This archetype lacksthe means to consistently transform society because they lackbureaucrats

The Developmental State: The key is embedded autonomy which isthat it possesses a variety of institutionalized channels wherein thestate and the private sector continually interact in a constructivemanner via a joint project of fostering economic development; it isclearly endogenous embedded in civil society via a dense web ofnetworks; to avoid being captured by special-interest groups thestate must exhibit the characteristics of autonomy (it can stand

alone, above the fray and beyond the controlling reach of vestedinterests)

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The 4 Roles of the Developmental State

The Custodian Role

The Producer Roledemiurge (autonomous creativeforce or a decisive power) function

The Midwife Role (A greenhouse policy) (How does it

work? Pg 215) The Husbandry Role (A policy of prodding and support)

(How does it work and how does it differ from the 3rdrole? Pg 215)

Depicting State Forms: Check out the different outlines

of 2 states namely Brazil and South Korea (What do youthink the Brazilian people should do to improve itscountry? Pg 215 218) (Can you see any flaws in theKorean state? Pg 218) (Fig. 7.1 (a) and (b), pages 216 &217 respectively will be your references)