The Development State and Other Useful Misconceptions

By Saliem Fakir · 5 Dec 2008

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Picture: Valkyrieh116
Picture: Valkyrieh116

There is this erroneous logic that there are developmental states in some places and advanced states in other places. One advances from a developmental mode to some sort of mature state in which the markets take-over.

This implicit typology of evolutionary progression of states is just nonsense. There is nothing static and permanent about the operational modes of states. They are creatures of time and context. What needs to be done under different circumstances must be done in the interest of public good.

The criticism of the developmental state is often an ideological knee-jerk reaction from free marketers who see in the idea of this form of state, a 'left' project for greater control over the economy – implying restrictions over private capital and more centralised planning of the economy. Their proposition would favour private anarchy at the expense of public stability. Aren’t recent times sufficient proof of the irrationality of such ideological mandarins and the harm financial anarchy can bring to the world if not properly overseen by the state.

The role of the state must be attuned to the nature of a country’s political-economy and not beholden to hard and fast ideological precepts. Context should drive its purpose.

Even Jeremy Cronin, described by some as the new Jeremiah of the left and who has of late gained ascendency in the ANC around economic policy debates, seems to fall into this very trap of willy-nilly accepting a confusing view of the developmental state. 

The term creates more confusion than it does facilitate clarity because it is subject to so many versions and appropriations. There is too much obsession with likening ourselves with others -- hence this penchant to insist we are developmental and perpetuating this confusion without really coming to grasp with what needs to be done.

The problem is that one country’s state can’t be another’s. One country’s development is not another’s. Each state must decide what is best for its own national interest, dictated by its particular context.

Nonetheless, all countries have developmental roles, at one time or another. It is a mere question of who or what they develop. There can be both perverse and positive developments. They are always developmental.

Hence, states will always vary in their mediation of development. Sometimes they get it right and at other times they get it wrong. Some are more ideological than others.

But states are only as effective as the capacity and competence of the human agents that run them. There is no point in getting into some ideological twist about whether a developmental state is good or not.

It is more important to understand each country’s political economy and what is needed to create a more balanced and equitable society. There needs to be consensus around economic policy and planning amongst different interest groups. Capacity must be developed to support the implementation of these plans.

At times, the State needs to be more interventionist and at other times it may prefer that there be some leeway given to markets and private capital, having being assured that these interests will not undermine the state and the public good in general.

Developed economies, filled with the irrational ideology of free market economics, favour the development of markets at the expense of public interest.  This is, generally, a result of the fact that special interests have captured the developmental aspects of the state for their own good. It does not imply that the state is less.

All of this is now to be seen in how the culprits of excess in the financial sector have come to recognise this more than we do. It is they who are running to the state and the public at large to rescue them from their misadventures. Suddenly, the importance of the state is back on the agenda.

America is a developmental state too. Its early industrial development was facilitated through heavy state intervention and trade protection. It may well go this  route again in the coming decade.

There is no reason why it shouldn’t be seen as a developmental state. Today, it can be judged as having the wrong sort of developmental role that incentivises a perverse development of the country’s economy and its people by dishing out lax laws, subsidies and taxes in favour of private capital and at the expense of the public good.

Even markets don’t just emerge out of some void.  Their very existence is the outcome of state intervention. This is no less nor more than the state is doing now in the US and other liberal economies, to claw back freedoms and rights given to the market because of the failures and excesses of the market. The state is taking back what it once gave.

Today, America, the great model of free enterprise, free markets and free trade is bailing out the loss-making financial sector, either through interest rate reductions or wholesale nationalisation of mortgage and investment banks.

The aftermath of all of this will ensure that irrationality, this mythical believe in the free market, will be replaced by rationality. The financial crisis will lead to more regulation, stricter rules of trade in various types of financial instruments and a close watch over banks and deals. All of this will happen because of the existence of the state.

If, that is not a developmental state than one wonders what else it can be. The state is being brought to the forefront of public life because we have just been shown how the current global financial meltdown cannot do without it.

The fact that its role has been so hidden in the developed world is largely a result of the dominance of private capital and markets. It does not, nor should it imply, that the state does not exist -- it exists in the shadow.

When they, private capital fail, they should be lucky that they still have the state to bail them out.

States can be good or bad – it really depends on how they manage and balance different contending interests in society.

Fakir is an independent writer based in Cape Town.

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ann bown
5 Dec

Developmental State

Is this the same 'developmental' state of the Soviet Block? Good for you to succinctly point out the difference - hope the powers that be read the article. Well done.

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Rory Short
7 Dec

Orderly Markets and Orderly States

I could not agree with you more. Orderly markets exist because they are within an orderly state, not the other way round. The state has to watch itself carefully however as by its actions it too can distort the market in unhealthy or unhelpful ways just the unfettered play of the market players can.

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