State Led Development

Introduction

After the second world war, some countries have found themselves behind for many reasons e.g.: natural resource endowment, population, market forces, and institutional factors. (Amsden, 1989). During the 1950s and 1960s, the state was expected to play important role in the development process. (Evans, 1994). The state in Late development countries have implemented several and different approaches to reduce the gap between their countries and the developed ones. Some states succeeded in harnessing the energies of their private and public sectors and natural sources to achieve rapid industrialization and development, whereas others have formed corrupted relationship to achieve personal interests and goals. However, there are many constrains and restrictions that prevent state from implementing the process of development even if the stats design development plans and programms and have the intention to apply them. Country context, former colonializations, people literacy and wrong planning may intervene and imped the development process.

This essay will explain the reasons behind the success of state led development in countries more than others using two different countries as examples (South Korea and Nigeria). The essay is distributed in three parts. The first part provides the reader with definition of the state. The second section critically reviews the different discourses around the reasons of the success and failure of the state led development. The third section will talk about two different countries, South Korea, in which the state played an important role in the development and will contrast it with Nigeria in which the state was unable to perform efficiently to achieve development.

1. The Concept of the State and its role in development:

Following Miliband- Poulantzas Debate in the 1960s and the 1970s, discussions on the state nature, structure, and influence over societies gained attention from literature. Kohli, (2004, p.9) defines the stats as:

“In addition to centralized and coercive control over a territory, a defining characteristic of all modern states is a well-established public arena that is both normatively and organizationally distinguishable from private interests and pursuits”.

The emphasize on the role of the government in development is also seen by Evans, Rueschemeyer and Skocpol,( 1985 p 46-47) who also define the state as

“set of organization invested with the authority to make binding decisions for people and organizations juridically located in a particular territory and to implement these decisions if necessary force”

In other words, the substantial reasons for the state existence is to serve the interest of the public and provide sufficient resources for the development of the country and people through decisions, policy making and rapid investment.

2. State Led Development Success and Failure:

Kohli (2004) argues that there are three types of the states and this classification is important because it will help the reader to understand more the reasons behind the success and failure of the state led development in different countries. 1. ) Neopatrimonial : The characteristics of the state is that it is poorly centralized, and hardly genuine authority structure. Leaders are unconstrained by role of law or institutions and bureaucratic and treat public resources as their personal properties. The consequence of the state led development under such state has often resulted in tragedy simply because the interest of the public and the capabilities to achieve the target goals are shifted to serve personal interest rather than public goals. Later in the essay we will see that Nigeria best example for such kind of state. 2.) Cohesive capitalist: The states have proved to be the most successful agent of deliberate state-led industrialization in peripheral countries because it has centralised and purposive authority structure that regularly breach deep into society. The priority of such kind of state is the economic growth with national security. For a variety of historical reasons theses state build relations and cooperation with major economic groups especially among the close coalition. The state usually implements tight control over labour. The key political tool is a competent bureaucracy. Leaders in these states are frequently using ideological mobilization to get acceptance in the society and associating rapid economic growth with national security. Examples of these states are South Korea, Singapore, and Malaysia 3). Fragmented multiclass: Between Neopatrimonial and cohesive capitalist lie fragmented multiclass. Public authority in these states tends to be more fragmented. These states are unable to define their goals. Leaders ignore public interest and focus on groups of people because leaders in this type of states worry more about political support. Example of such state. India.

A group of developing countries (South Korea, Taiwan, Brazil, India and Mexico) began the twentieth century in an economically backward state based on raw materials, and dramatically raised national income per capita by investing in industry, these countries labelled under “Late industrialization” (Amsden, 1989) So, the state in these countries took the big push to make progress towards development. But one could ask why some countries were able to succeed fay beyond other countries?

Reasons of Success of state led development in countries more than others

According to Change (2003), there are three main reasons why state intervention in East Asian countries were successful: 1.) Policy realism: all decisions made by government regarding priority sectors were made after careful study of surrounding facts and figures such as market condition and the state of local technological capability. 2.) Policy flexibility: Policy makers are able to admit their mistakes and try to correct them. 3.) State autonomy: states have the will and able to withdraw support from industrial firms when there is no improvement in industry productivity, the state could exercise its autonomy in a method that is attached to, but not influenced by, private sectors interest.

To boost development the governments intervened systematically and through various channels. Policy interventions took many forms (World Bank, 1993). In Industry, states intervened by protecting and supporting new-born industries by providing them with facilitations to subsidies. However, these subsidies were monitored and controlled by the state and constrained by specific roles and regulation. In returns of these subsidies, the state imposed performance standards on private firms which made the subsidies lower and more sufficient. The state interfered to address the needs of both savers and investors, and of both exporters and importers, by creating multiple prices and establish multiple prices in the same market. (Amsden, 1989). Amsden echoed this by saying

“the state cannot be said to have gotten relative prices “right,” as dictated by supply and demand. In fact, the state in late industrialization has set relative prices deliberately “wrong” in order to create profitable investment opportunities”. (Amsden, 1989, p, 13- 14).

According to word bank (1993) successful state led development intervened in successfully in the following areas: 1.) Economically, the government provided a stable macroeconomic environment and a reliable legal framework to promote domestic and international competition. successful state led development countries were able to limit fascial defect to the minimum without increasing inflationary pressure and respond quickly and efficiently when they face any kind of such pressure. As the government was able to control the inflation, thus inflation was moderated and predictable, real interest rates were also stable in compare to other countries. This macroeconomic stability encouraged both long term planning and private investment. 2.) Stats appointed a competent technocratic cadre who were responsible on providing day to day advise to the government.3.) Building human capital, education and learning were on the top priority of late industrialization countries. Post-secondary education focused on technical skills, and some countries imported educational services on large scale particularly on vocational and technological sophisticated discipline, building on the human capacity has a major impact and contribution to the rapid economic growth and also led to equitable economic distribution. 4.) Foreign technology, these states have actively sought foreign technology through a variety of mechanisms, form of licenses, capital goods imports, and foreign training. Openness to direct foreign investment has speeded technology access in Hong Kong, Malaysia, Singapore, Indonesia and Thailand. Japan, Korea, Taiwan and China 5.) Agriculture, East Asian states supported agricultural researches and extension services to speed diffusion of Green Revolution technologies. their substantial investments in irrigation and other rural infrastructure hastened adoption of high yielding varieties, new crops, and the use of manufactured inputs, such as fertilizer and equipment, to cultivate them

So far we saw that the state led development in some countries encouraged investment by several ways. First, they did a better job than most developing economies at creating infrastructure that was complementary to private investment. Second, they established an investment friendly environment through a combination of tax policies.

In contrast, one of the main reason for the state led development failure in other countries is the introduction of new financial measure that serves the interest of specific groups, sector and state only. The state had transferred the work of the marketing agencies, which was established during the colonial era and officially mandated to use the amount of the funds they collected through the agricultural activities for the benefit of the farming community and stabilizing the prices. Once the colonialization end the state controlled these agencies and shifted the role of these agencies from being responsible for stabilizing the prices to increasingly being responsible for imposing tax which led to increase in the prices. So instead of supporting agriculture they created inflation. The states of Africa, like states else-where in the developing world, they seek to divert resources from their “traditional” economic sectors to their “modern” or “developing” sectors. Therefore they put pressure on the marketing agencies to give funds to industrial cooperation with great facilitation, thus the agencies became the funding organization for redistributing income from agriculture to industry. With the passage of time people were unable to run the industry as it was supposed and they never return the loans they borrowed from the agencies because they lack the management and technical capacity to run the firms and because there was no pressure from the government on this firms to return the money. This led to a gap between sectors. And lose a very important resources of foreign currency which was the agriculture main source of it. (Bates, 2014)

In addition to that, countries like India and Argentina have adopted policies that banned the acquisition of foreign knowledge. Also, they refused to send people to the advanced technological countries to acquire knowledge, thus forgoing the advanced technology embodied in imported equipment (World Bank, 1993).

3). South Korea Effective State Vs Nigerian Ineffective State:

The Japanese colonial had impact on the nature of the Korean state and on the relationship of this state to various social classes. Japanese colonialism in Korea helped to establish a cohesive-capitalist state in specific patterns. These patterns included high bureaucratic penetrating and architectonic state. (Kohli, 2004).

The reason behind the success of the state led development in South Korea because state exercised discipline over private firms: this has enabled subsidies to be more effective. If the big business groups loaned long term capital at negative real interest rates, they should use the borrowed capital in productive way rather than speculatively. Another important point if the business groups are given the permission to sell in protected domestics market, they should sell in export market as well with focus on efficiency. These procedures consisted the initial phase for high growth rates of productivity, this made Korea to borrow extensively in international capital with overseas loans. In addition to that government rewarded firms who entered hazardous industries with other industrial license in more profitable sectors. This led to enlarging the scale of the business and export as well as development of diversified business groups (Amsden 1989). Korea differs from most other late industrializing countries is in the discipline its state exercise over private firms by penalising poor performance and rewarding only good ones. Good performance was evaluated in terms of production and operations management rather than financial indicators. There was a constant pressure form government bureaucrats on cooperate leaders to sell more a board with obvious implication for efficiency. Pressure to meet ambitious export targets gave the big push into heavy industry its unique character. In exchange for government support

Firms have been subject to five general controls. 1) Nationalize of banking system. Government governor commercial banking. 2) Government imposed limitation to the number of firms. 3) Discipline has been exercised on “market-dominating enterprise” through annual negotiated price controls, in order to avoid monopoly power. 4) Investors have been subject to controls on capital flight, or the remittance of liquid capital overseas. 5) The middle class have been taxed, and the lower classes have received almost nothing in the way of social services. This has enabled a persistent deficit in the government account to reflect long term intervention. (Amsden, 1989)

In contrast to South Korea, Nigeria is classified as Neopatrimonial state. There are many reasons behind the state led development failure. First, unlike South Korea which Japanese colonization assisted in building the state, the British colonisation in Nigeria shaped the economic to be small-scale, simple and based on underdeveloped technology. In addition to that, British colonial failed to centralize authority to develop an effective civil service and build the capacity of the state to tax the state population directly and they didn’t take any action to support industry, transfer technology or protect infant industry. So the Nigeran had inherited poor bureaucracy from their colonial experience and the British had left Nigeria as fragmented and ineffective state and not prepared for achieving transformation to modern state.

The Nigerian economy improved during the late colonialization arena, because British intervened extensively in the economy especially in manufacturing, which depends mainly on foreign trade commodities such as palm cocoa, and groundnut improved during the war and stayed in demand till 1955. Government did not make any efforts to improve industry and agriculture. Foreign investment focused on consumer products such as textile, soft drinks.

There are four important areas of Nigerian state intervention, 1.) revenue extraction taxation: state generated only one- third of the gross capital formation which is low even according to the African’s standards and the majority of it is was a revenue of taxing imposed on foreign trade. Also on customs duties on import and export. Unlike east Asian countries that were supporting infant industries with subsidies, Nigerian state established institution called (MBs) the main purpose of it was to buy the products from the peasants in a fixed price and sell it in the international market, and keeps the differences as a agrarian surpluses. With the time and with support of the Nigerean state the work of this institution shifted to collect taxation that has long term negative effect.2) spending especially on education. Nigera was divided into South and North, most of the educated people were based on the South. Thus, the educational programme which the government announced worked only in the South, whereas people in the north rejected the education programme. The Education programme couldn’t achieved its designed outputs. Public contracts to reconstruct the schools were not fulfilled, teachers were not qualified 3) Efforts to stimulate indigenous manufacturing: The government made a lot of facilitation to encourage manufacturing e.g: tax relief, positive import rules for producer and the founding of industrial state. However, all these facilitations did not have a real outcome because there was not enabling environment in terms of human capital and institutional 4) Neglecting Agriculture sector: One of the biggest mistake of the Nigerian government is their negligence of the agriculture and ignoring the peasants as a vital part in the development of the country, because food production consisted more than half of the national production.

Later on British gave up power to a variety of indigenous forces that were separated on both ethnic and tribal lines. A state that was fragmented , with the absence of real leader keen to achieve development , an incompetent bureaucracy. Nigeria at the end of the twentieth was far beyond other countries, fragmented political structure, low literacy, and weak agrarian technology. These had led to coup and civil war in 196, which ended up by establishing Nigerian sovereignty. However, all the leaders who can to power in Nigeria lack the willing to achieve development and care only about their personal benefit. Therefore, the intervention of the Nigerian state was not fruitful becuase of the bureaucracy inherited from the British former colonalisation and because the government policy towards industry and due to the leaders who didn’t have the vision for future development and who prioritised their interest over the country. Kohli, A. (2004).

Conclusion:

To sum up, state led development were mainly successful in countries like east Asian because of many reasons like, policy realism, policy flexibility and policy autonomy. In addition to that there were other factors that contributed to the success mainly former colonialism. We can argue that Japan colonloism to Korea helped in shaping effective state to fulfil its duties after independence. On the other hands state led development in counties like Africa failed to achieve the goals, due to impleneting wrong financial process on the industry and neglecting a very important sector like agriculture. Also, colonialism has negative influence on country like Nigeran and prevent it from achieving industrial progress.

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