The State as a Potential Agent of Transformation

Introduction 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 State Embedded Autonomy Depicting State Forms

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 the Manchester Liberals 1940s to the mid-1970s: Keynesian economics dominated policy-making- and economic theory In the latter half of the 1970s: Counter-revolution in economics began to emerge in Margaret Thatchers Britain (1979 1990) and in Ronald Reagans USA (1980 1988) The conference of the North and South to establish a New International Economic Order (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 transnational companies (MNCs) by pushing up oil prices via a classical cartel arrangement which most of them squandered on grandiose development projects and conspicuous 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 American and African nations that had accumulated huge and unstable external debts The new economic policies advocated by Thatcher and Reagan was giving a shape by a group of economists known as monetarists (also neo-liberals) which interpreted that the turmoil of the 1970s as largely the result of too much governmental 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 growth rate of the money supply to control inflation and spur growth

Origins of the Neo-Liberal Paradigm (Pg 194 198)

Started with Lord Bauer with a very different economic perspective he believed that the market harmonizes the interests of all participants, everyone gains (a restatement of Adam Smiths ideas) The Free Market, export and the nature of Colonial Rule, a Case Study of British West Africa: The British had pursued a policy of native paramountcy (Can you find out what it is? pg 195) and he conducted his research in an area of the British Empire which was very atypical where plantation-based or and/or mining enclave economies were the rule, not the peasant-based exportoriented structure Ethnicity and Race: Growth is due to both reliance on the free market and intangible characteristics that is believed to be natural to certain ethnic groups (Racial and ethnic theories of development have been dismissed by careful empirical research)

Government in the Process of Development

Bauers perspectives have been applied selectively by the neo-liberals especially about the negative role of government 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 technical assistance as extremely important instruments of influence which can be utilized to impose their policies on less-developed nations or risk forgoing such assistance 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 the government?) (Pg 193 202)

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 on macroeconomic considerations rather than on microeconomics and the abandonment of the theory of comparative advantage (What do you think of Lals idea of governmental intervention in the economic affairs of a nation? Pg 204 -205)

The New Political Economy

Anne Kruger: Her own work had concentrated on the economic waste and social distrust and instability which occur when the state has the capacity to redistribute income to selected elements of society and attacked the rent-seeking society (Do you still remember what it is?) (pg 205 206) The factional state and rent-seeking behavior: Krugers solution for rent-seeking is to
1. Sell off state owned firms (the shrinking of the state to a minimum) by a process called privatization 2. Eliminate tariffs and import licenses 3. End special subsidies 4. Eliminate any policy that might create gains for special interest

 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 economic system but the assumption that rents arise uniquely in the state is unwarranted Also the assumption that in the private sector there exists perfect competition or enough workable competition to eliminate rent because perfect or good competition needs to flourish only in a circumstance where information (knowledge) is symmetrical (perfect) BUT participants in the market will have different access to information (asymmetric information) Countries which have received the strongest inducement to shift toward neoliberalism have fared rather poorly Neoliberals have also falsely claimed that the Asian miracles of Taiwan, South Korea, Singapore and Hong Kong were models of free market which successfully developed (Why do you think that the author of this book says so? Do you think that those economies have very little governmental interference? Pg 207 208) Though, by forcing a reassessment of the role of the state, the neoliberals have made a positive contribution to our understanding of the process of development World Institute for Development Economics Research (WIDER) have found out that getting the prices right of which is the recommendation for the ills of les-developed nations by the neoliberals is not enough (What does WIDER further recommend that less-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)

An Assessment of Neo-liberal Theory of the State

Embedded Autonomy
Peter Evans: He identified 3 archetypes of the state 1. The Predatory State 2. The Intermediate State 3. The Developmental State The conceptualization is that states can vary, depending on the historical evolution of specific societies; states are the results of complex historical forces and relationship but they are also actors or agents potentially capable of shaping and influencing the ongoing process of historical evolution Structures and capacities deployed by the states serve as agents of societal transformation and growth a viable joint project wherein civil society (the private sector) and the state managers are able to constructively and dynamically interact to engage in societal transformation He did not present a dynamic analysis of why and how his 3 archetypical states come into existence, perpetuated and metamorphose from one archetype to another so he didnt offer a complete theory

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 demise by establishing secret bank accounts overseas for capital flight (How does the government servants function and what is the ruling structure?) (Pg 211 212) The Intermediate State: There are inconsistencies where within specific sectors exhibit the features of the predatory state; also exhibit pockets of efficiency where they demonstrate professionalism and competence in designing, promoting and completing imaginative and important projects jointly with the private sector or on their own through the state. This archetype lacks the means to consistently transform society because they lack bureaucrats The Developmental State: The key is embedded autonomy which is that it possesses a variety of institutionalized channels wherein the state and the private sector continually interact in a constructive manner via a joint project of fostering economic development; it is clearly endogenous embedded in civil society via a dense web of networks; to avoid being captured by special-interest groups the state must exhibit the characteristics of autonomy (it can stand alone, above the fray and beyond the controlling reach of vested interests)

The 4 Roles of the Developmental State

The Custodian Role The Producer Role demiurge (autonomous creative force 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 3rd role? Pg 215) Depicting State Forms: Check out the different outlines of 2 states namely Brazil and South Korea (What do you think the Brazilian people should do to improve its country? Pg 215 218) (Can you see any flaws in the Korean state? Pg 218) (Fig. 7.1 (a) and (b), pages 216 & 217 respectively will be your references)