Article originally published July 1987, Volume 18 Issue 3; original IDS editing is retained here.
Abstract
We are currently witnessing a global process of economic
restructuring in both North and South, East and West. Though country
contexts may differ, there is one strikingly common element: the criticism
of statist modes of development and provision and the move towards
greater use of market mechanisms in the delivery of goods and services.
As the case studies covered in this Bulletin suggest, this reaction against
statist forms of development is common to both Western Europe and
the Third World. This similarity is hardly surprising given their economic
interdependence, the activity of international disciplinary institutions
such as the IMF and the World Bank, and the historical link between the
emergence of developmental states in the newly independent territories
and the system of managed capitalism practised by their former colonial
masters. Do the contributors to this Bulletin offer any ways forward for
both theory and practice? Certain analytical points emerge which arc
important guides to thinking about policy.
We are currently witnessing a global process of economic restructuring in both North and South, East and West. Though country contexts may differ, there is one strikingly common element: the criticism of statist modes of development and provision and the move towards greater use of market mechanisms in the delivery of goods and services.
The problems which this economic 'liberalisation' are designed to tackle
vary widely: in Western Europe, there is a perceived need to respond to
accelerating technological change, internationalisation of markets and
(in the British case at least) relative economic decline, but in developing
countries there is a multiple crisis, visible in economic stagnation and
debt, social deterioration and governmental incapacity, and the sheer
problem of hunger and starvation. Though their cases are complex,
one central element stands out: the problem of state failure, whether this
takes the form of Keynesian macro-economic management and welfare
provision in the First World, 'developmental states' in Third World countries, or central planning and party power in socialist countries. The crisis is held to be rooted not merely in state policy, but in the state
itself – its political and organisational substance and its characteristic
modes of operation. Politics is thus central to our understanding of
economic restructuring: in its causes, its conduct and its impact.
Concurrent with these trends in the real world has come a 'paradigm
shift' in thinking about the roles of states and markets in the process of
development. While earlier theorists focused on the inadequacy of the
market and provided an implicit or explicit rationale for state provision,
current orthodoxies highlight the inadequacy of political solutions and
argue for a reduction in the role of the state. This trend of thought
is true for both 'neo-liberalism' in capitalist contexts and 'economic
reformism' in socialist contexts. In academic circles there has been
a movement towards analytical approaches characteristic of liberal
economic theory in the discipline of economics itself and in political
science, as John Dearlove demonstrates in his critical review of public
choice theory.
As the case studies covered in this Bulletin suggest, this reaction against
statist forms of development is common to both Western Europe
and the Third World. This similarity is hardly surprising given their
economic interdependence, the activity of international disciplinary
institutions such as the IMF and the World Bank, and the historical
link between the emergence of developmental states in the newly
independent territories and the system of managed capitalism practised
by their former colonial masters, whether in the form of Anglo-
American Keynesianism or French dirigisme, a relationship discussed
by Brett and Dutkiewicz and Williams in their articles. Holmes alludes
to this link when he describes the Liberation of France in 1945 as the
equivalent of independence for ex-colonial states and refers to France as
'the first NIC'.
One can trace certain central politico-economic features common to
both contexts. First, they share a similar critique of the deficiencies of
state-led development: the incapacity of state officials to manage the
economy in efficient ways (Leys documents the inability of African
governments to foster agricultural growth and Morgan attributes
part of the impulse to liberalisation in the telecommunications sector
in Britain to the technical and commercial inadequacies of the Post
Office, later British Telecom); the distortions in strategic development
strategy induced by the dominance of the state (Fuhr relates this to the
preference for 'bigness' in projects and enterprises in Latin American
industrialisation which impeded the growth of the small-scale sector,
while in the Chinese context White shows how the harnessing of
Chinese agriculture to a heavy industrialisation drive imposed a 'triple
subordination' on the peasantry which obstructed rural development);
and the fact that the dominance of the state is often based on the
emergence of a new class or stratum whose power is rooted in political
or administrative office (Fuhr and Dutkiewicz and Williams point to the rise of a political or state class in the African and Latin American
contexts which uses the state for its own interests). These criticisms
are particularly strong where developmental states have failed to live
up to the optimistic assumptions of the post-war era. Even in France,
however, where dirigisme is generally regarded as successful and state
corporations have had a relatively good track record, by the mid l980s
the impulse towards economic liberalisation and outright privatisation
had become a common plank in the platforms of both left and right, as
Holmes points out.
Perceptions of state failure have generated powerful political impulses
towards economic restructuring in both First and Third Worlds, not
to mention the market-oriented economic reforms in Eastern Europe
which began relatively early, in the 1960s. The variation in response,
the specific nature and impact of restructuring programmes, has been
greatly influenced by the particular constellation of political forces at
work in each national context. Morgan argues, for example, that though
the pressures operating to impel restructuring of the telecommunications
regulatory regime in Britain and France were similar, their political
responses have been different and the outcomes of restructuring differ
markedly. It is particularly important to understand the specific pattern
of political interests embedded in the previous, state-dominated system
of regulation, to draw a map of winners and losers; this in turn helps
us to identify the supporters and opponents of reform. In Britain,
for example, the previous system of telecommunications generated
widespread dissatisfaction, particularly among business users, but the
move towards privatisation was opposed by a coalition of embedded
interests, notably the unions worried about job security and the principal
supplier firms threatened by foreign competition. Particularly important
in the British context was the rise to power of the Conservative Party
in 1979, a party that was committed to a neo-liberal perspective and
to radical change and was prepared to override opposing interests in
the telecommunications sector and elsewhere. In the Chinese context,
conservative rural cadres were overridden by the Communist Party
which was committed to rural reform.
In the African and Latin American contexts, the political obstacles faced
by economic reforms are more impervious to change, rooted as they
are in the institutionalised dominance of state interests and patronclient
relations between state organisations and specific social interests.
Any significant change in policy direction requires the political force
necessary to challenge and if necessary dismember these networks
of power and interest. Though their hand may be strengthened by
the very seriousness of the problems they confront, and forced by
the pressure of international institutions such as the World Bank
and IMF, the political task is still prodigious. In the African context,
Dutkiewicz and Williams remain pessimistic about the political capacity
of governments to take on this challenge. In the Latin American
context, though a move towards small-scale industry is developmentally
rational in the current context of indebtedness, relative stagnation and increasing unemployment, the politico-administrative obstacles posed
by the intersecting interests of 'state segments' and powerful business
pressure groups, and the characteristic nature of state administrative
interventions make this industrial restructuring very difficult. It requires
basic political and institutional change. It is significant, however,
that where the potential beneficiaries of reform – in this case, small
entrepreneurs – are better organised to press their claims, as in Ecuador
as opposed to Peru, a greater degree of reform has been possible.
These examples raise the crucial issue of the political nature of economic
reform coalitions and the relation between economic reform 'from above'
(state-sponsored) and 'from below' (socially demanded). One may well
doubt the capacity of state elites to transform themselves and undermine
the basis of their own power and privilege (unless in unavoidably dire
straits). The political basis of economic restructuring will be stronger
if there is the possibility of alliances between reform-minded elements
of the established regime and those social interests from below that are
dissatisfied with the status quo and set to benefit from reform. White's
study of the Chinese rural reforms provides a vivid example of such an
(implicit) alliance – between reformist leaders in the Chinese Communist
Party and large sections of the peasantry who combined to outflank
conservative officials in the state and commune hierarchy.
To the extent that the political constraints embedded in the
previous statist mode of development are ruptured and a more or
less thoroughgoing process of economic restructuring is actually
achieved, there will be important political consequences. New patterns of
beneficiaries and losers emerge to condition the future policy agenda:
for example, Morgan shows the uneven pattern of benefits deriving
from the privatisation of British Telecom. More fundamentally, to the
extent that economic restructuring transfers economic power from
state to society and the economy operates in a more decentralised and
competitive fashion (and this obviously varies greatly), there is a change
in the political balance between state and civil society that may redefine
the rules of the political game and the character of the political process.
In socialist contexts at least, as White's analysis of China suggests, it
may lead towards a more 'pluralistic' political system in the long run.
Do the contributors to this Bulletin offer any ways forward for both theory
and practice? Certain analytical points emerge which are important
guides to thinking about policy. The case for the market and against the
state is now widely accepted, not the least among socialist economists,
but there is a need for caution when faced with the policy bandwagons
of 'liberalisation' and 'privatisation'. First, it is important not to accept
a simple dichotomy between 'state' and 'market' but to recognise the
interdependence and potential complementarity of these two modes of
social organisation. To develop effective market institutions there is a
need for an effective state to coordinate market sectors and set strategic
directions, to set and enforce rules, handle conflicts and inequalities,
correct distortions, regulate external transactions and so on – several of our authors make this same point in different contexts. Holmes,
for example, argues that state planning in France was not intended to
displace the market, but to create a new, more modern type of capitalist
economy which would eventually outgrow its patron, the state; Japan
and South Korea are also cited as examples of the interdependence
and complementarity of state and market. At the deepest level, it is the
politics of a society and the interests within it which regulate the nature
of this interaction between state and market.
This implies that, even where the state has failed, the developmental
problem cannot be solved by turning to the market alone. There is
still the need to reconstitute an effective developmental state. Creative
thought is necessary here, not least, as Brett suggests, through an
attempt to reconstitute that branch of inquiry formerly known as
'development administration'. This may involve a move away from
Weberian principles of 'rational' bureaucracy and an eclectic fusion of
ideas and practices from political science, organisation theory, business
and management studies and public sector economics. The central
focus would be on the question of restructuring the state, devising new
institutional forms and methods of intervention which may serve to
reduce its bureaucratised power and well-established developmental
deficiencies.
The second point which emerges from the studies in this Bulletin is the
need to adopt a critical perspective on the 'new orthodoxy' and its
policy implications. Liberal principles of economic restructuring are
often presented as a simple panacea for what ails the First, Second and
Third Worlds. As the articles by Dearlove and Brett point out, however,
there are serious analytical deficiencies in the new paradigm. There is
also the danger that the new orthodoxy counterposes a realistic view
of the (vices of the) state to an idealised view of the (virtues of the)
market. As Brett argues, although we can accept much of the current
case against the state, it is also important not to forget the original case
against the market and the concomitant rationale for state intervention,
much of which is still valid, though clearly in need of rethinking. There
is a common problem which crosses the state-market divide – that of
monopoly power in the economy and the polity – and it is important to
tackle this through plans for democratising political organisation and
securing real competition in the economic sphere.
Moreover, if part of the new orthodoxy's critique of the developmental state is that it leads to the politicisation of economics, our authors show that markets and market actors, both international and domestic, are themselves highly politicised (for example, Cawson's analysis of Western European firms as political actors). This once more reinforces the centrality of politics across both state and market – a theme to be taken further in the next issue of this Bulletin.
© 2016 The Authors. IDS Bulletin © Institute of Development Studies | DOI: 10.19088/1968-2016.177
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This article is part of IDS Bulletin Vol. 47 No. 2A November 2016: 'States, Markets and Society – New Relationships for a New Development Era'; the Introduction is also recommended reading.