Towards New Developmentalism

Market as Means rather than Master

Shahrukh Rafi Khan, Jens Christiansen

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136919244
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The global financial and economic crisis starting in 2007 has provoked the exploration of alternatives to neo-liberalism. Although neo-liberalism has been critiqued from various perspectives, these critiques have not coalesced into a concrete alternative in development economics literature. The main objective of this book is to name and formulate this alternative, identify what is new about this viewpoint, and project it on to the academic landscape.

This book includes contributions from many prominent development economists who are unified by a form of "developmental pragmatism". Their concern is with the problems of development that preoccupied the pioneers of economic development in the mid-twentieth century, known as the developmentalists. Like the developmentalists, the contributors to Towards New Developmentalism are policy-oriented and supportive of institutional development and engagement with economic globalization. This collection has an over-arching concern with promoting social justice, and holds the general view of the market as the means to affecting an alternative program of development rather than as a master whose dictates are to be obeyed without question.

This important collection sets the agenda for new developmentalism, drawing on issues such as industrial policy, technology, competition, growth and poverty. In broad terms, the economic development debate is cast in terms of whether the market is the master, an ideological neo-liberal perspective, or the means to affect change as suggested by the pragmatic perspective that is being termed neo-developmentalism. This book will be valuable reading to postgraduates and researchers specialising in the area of development studies including within economics, international relations, political science and sociology.

Part I
Introduction

1
Exploring and naming an economic development alternative¹

Shahrukh Rafi Khan

Introduction

In the last three decades, a substantial body of scholarship has emerged that collectively represents an alternative development program to neo-liberalism. However, this research, exemplified by the contributions of Amsden (1989), Chang (2002), Johnson (1982), and Wade (2004) on East Asia, has not coalesced into a distinct alternative in the development economics literature.² The global financial and economic crisis of 2007–09³ has created a climate to explore alternatives and a validation of the alternative proposed by the above scholars. For example, the nationalization of a substantive part of the automobile industry in the US, a bastion of free market capitalism, is one prominent example of such validation as will be explained below. The main objective of this volume is to explicate and name an alternative, identifying what is new in this program, and projecting it onto the academic landscape.

This volume has emerged from a conference at Mount Holyoke College, November 14–16, 2008, that brought together development economists supportive of an alternative program. Our focus is on an economic development strategy that evidence has proven superior to neo-liberalism, which is at best ineffective and at worst destructive. The discussion at the Conference on naming of an alternative produced a consensus around the term “new developmentalism” to characterize the program proposed in this volume. The call for “new developmentalism” was made by Alice Amsden at the UNCTAD “High Level Round Table on Trade and Development: Directions for the Twenty First Century,” February, 2000, Bangkok.⁴

What unifies these new developmentalist economists is a form of “developmental pragmatism”: they are concerned with the problems of development that preoccupied the developmentalist pioneers of the mid-twentieth century, chief among them Rosenstein-Rodan (1943), Nurkse (1953), Lewis (1954), and Hirschman (1959); they are policy-oriented and largely endorse the policy solutions recommended by the early developmentalists; they support institutional development and engagement with economic globalization; they are concerned with promoting social justice; and they view the market as a means to be harnessed for this alternative program of development rather than as a master whose dictates are to be obeyed.

Developmentalism generally refers to an activist state engaged in selective industrial policy. Industrial policy is defined as strategically creating comparative advantage in industries that embody dynamic efficiencies in low- and middle-income countries. Dynamic efficiencies include increasing returns and potential for technological development, learning by doing, training, raising labor productivity and energy efficiency, and externalities (including diffusing managerial and marketing skills). Thus central to this program is a pro-active state and such states have been referred to as developmental.⁵

While some have criticized development state theorists as “ahistorical” and “technocratic” (Berger 2004: 209), contributors to this volume view their scholarship as building on historical studies, welcoming of institutional and political economy approaches, and often drawing upon inter- and multi-disciplinary methodologies. Even so, the theory of the state and state autonomy are central challenges for an alternative program if one is to argue that the East Asian experience can be more generally replicated. Chang (2006: 47–52) very effectively refutes the standard arguments concerning non-replicability including the lack of a competent economic bureaucracy in most low-income countries and the changed global economic scenario relative to when the East Asian economies took off.

Evans’ (1995) comparative institutional analysis classifies states as either developmental or predatory, though most fit into an intermediary category. In Evans’ conceptualization, developmental states are embedded in the political and economic milieu with open channels of communication between the political administration, business, and the economic bureaucracy, but such that the latter has sufficient autonomy to act in the public interest. Thus, the presumption is that the economic bureaucracy is reasonably efficient and honest. Such economic bureaucracies are able to perform various functions as circumstance requires, including custodian, demiurge (production), midwifery, and husbandry. Evans also views the state’s role in the development process as complex, dynamic and unique to the country in question and with outcomes that are uncertain. For example, the outcomes of a national project, with ostensible buy-ins from other stake holders, may still be unexpected and may result in constituencies that challenge state action. Hence, there is a constant need for the state to transform itself to remain relevant for the broader industrialization project.

This view of the state is implicit in most of the chapters in this volume although Khan in Chapter 12 of this volume proposed that a new development program could be pursued with much less stringent requirements on state capacity. Chang (2006: 48) points out that the capacity of the economic bureaucracy concomitantly develops and should not be viewed as a pre-requisite. He points out that Korea sent its economic bureaucrats for training to the Phillipines and Pakistan in the late 1960s. However, Shapiro, in Chapter 5 of this volume, criticizes Evans’ concept of “embeddedness” as somehow emerging from above rather than evolving organically from the “social and political dynamics of state-society relations.”⁶

Fine (2005: 17–18), makes an important distinction between scholars writing about the developmentalist state from a political or an economic perspective; the latter is the focus of this volume.⁷ Based on the Asian financial crisis of 1997, Fine viewed developmentalism as declining and thus saw the time as opportune to present radical political economy as an alternative. He views such decline as inevitable following the contradictions that emerge between the state and empowered capital, once “catch up” has occurred. The focus of this volume is on catch-up development, rather than on processes and tensions that arise after the fact.

Exploitation, class struggle, and social transformation are central to a radical political economy approach. A more reformist agenda that includes land reform, just wages (at least tied to productivity), and industrial labor empowerment via economic democracy complements industrialization by promoting productivity growth and boosting domestic demand. New developmentalist scholars have pointed out that both Korea and Taiwan benefited from land reform in their industrialization efforts, and Amsden (1989) shows how the military regime promoting industrialization in Korea did not rely on wage repression. However, both these governments were authoritarian and are noted for repressing labor and so attaining development without labor repression is a key challenge to this approach as an alternative to neo-liberalism.

Neo-liberalism or the “Washington Consensus” has been characterized as an unlikely amalgam of neo-classical economics, which provides the intellectual rigor, and the Austrian school, which provides the political and moral philosophy (Chang 2002: 540). Calclough (1991: 17–22) distinguishes it from neo-classical economics and argues that neo-liberals are more likely to engage in policy advocacy. Williamson (2008), credited with coining the term Washington Consensus, points out that this term has acquired meanings not intended by him when he first identified what he viewed the consensus to be in 1989. Williamson had initially distanced the Washington Consensus from the neo-liberalism of the Mount Pelerin Society or the Reagan–Bush focus on supply side economics, monetarism, and minimal government. The original ten-point consensus he outlined included fiscal discipline, re-ordering public sector priorities (to be pro-growth and pro-poor), tax reform (raising the base and reducing rates), interest rate liberalization, competitive exchange rate regimes, trade liberalization, foreign direct investment liberalization, privatization, deregulation, and expanding property rights. It does seem, however, that the strong emphasis on privatization, liberalization, and deregulation of this program is suggestive of minimal government.

The developmentalist critique of neo-liberalism is not the only critical narrative, and new developmentalism is not the only proposed alternative. There is a large literature that critiques neo-liberalism and presents progressive alternatives.⁸ While it presents alternative policies, much of this literature does not take the step to develop a coherent alternative to neo-liberalism. Baker et al. (1998: 3), for example, note that they did not intend to present “a unified theoretical alternative to neo-classical economics.” This volume, by contrast, not only shows how neo-liberalism perpetuates itself, shrinks policy space, and constricts turning to an alternative, but also strives for a unified, operational, alternative economic development policy to neo-liberalism. Further, the alternative we develop in this volume is pertinent to contemporary industrialization efforts in low- and middle-income countries. Similar to Cimoli et al. (2009), this volume focuses on various aspects of industrial policy, but our project seeks to identify a broader alternative development program.

In making a case for working towards “new developmentalism” as a coherent alternative, this book draws on the thinking of early developmentalists. As mentioned in the opening paragraph, a distinctive aspect of new developmentalism is the conceptual breakthroughs that emerged from the insightful observations of scholars like Robert Wade and Ha-Joon Chang, among others, about how development, defined as transforming production structures and achieving an endogenous technological capacity, actually happened in East Asian economies.

This concept differs from development as defined by Sen (2000) or the UNDP’s Human Development Reports. While Sen (1999) praises Korea and Taiwan for their achievements in human development and their approach for achieving these outcomes, the human development approach tends to focus on defining the possible outcomes of successful development and not necessarily development itself – “the missing prince of Denmark” as Ha-Joon Chang puts it in his chapter of this volume. The exploration of process using various empirical tools, including the case study (inductive) method, is what put an alternative explanation onto the academic landscape. The process of development has entailed “governing the market,” as Wade (2004) put it, and thus examination of the tools of pro-active government will be an important overarching theme of this volume.

The developmentalists indicated much of what was needed for industrialization in the post Second World War context in which they wrote, but fell short of exploring how it could be achieved in terms of specific design principles. This gap has been addressed in the emerging literature of new developmentalism. Robert Wade, in setting the agenda for new developmentalism in the opening chapter, emphasizes governance capacities of the state. These could be viewed as akin to agricultural extension services, but targeted at industry; an apex body with real power and a Weberian merit-based bureaucracy for implementation that subordinates short-term to long-term interests. The pro-active state needs to use performance criteria and, at times, sanctions to achieve developmental objectives. Ha-Joon Chang stresses the state’s political ability to mediate losses and socialize risk, as was done by the US in 2009 when it took over a large part of the automobile industry. Another important insight of new developmentalism is that export promotion (EP) and import substitution industrialization (ISI) are complementary and synergistic rather than alternative policies. Finally, while developmentalists tend to be inward-oriented, Robert Wade and others mention that globalization needs to be engaged with. Thus, Kevin Gallagher and M. Shafaeddin show in Chapter 9, while comparing Chinese and Mexican economic development, that policy must be pro-active to derive benefits from economic globalization.

Ha-Joon Chang in Chapter 3 of this volume sees the move to new developmentalism as a synthesis of the “productionist” focus of the developmentalists with key subsequent insights in the development economics literature that did not or could not (in the case of climate change) get a sufficient emphasis in early developmentalist writings. Nonetheless he indicates that the core aspect of development is transforming productive structures (moving to higher productivity activities) based on superior technology and knowledge and organizational capability embodied in institutions. He points out that development is essentially a collective endeavor, in contrast to, for example, micro-credit that targets the individual.

Erik S. Reinert, Yves Époque Amaïzo, and Rainer Kattel in Chapter 4 argue from the same vantage point in their prescription for a country to avoid a failed, failing or fragile status and argue that the economic history of currently high income countries provides substantial support for the core of a new developmentalist position. They also define development as the move to high productivity activities in the process of achieving an indigenous technological capacity. In their view, much else that is desired, such as human development, transparency in governance, a clean environment, and solid institutions may be concomitantly achieved so that they question the general view of causality that proposes objectives as prerequisites.

As earlier mentioned, much of the new developmentalist literature focuses on industry, as did the developmentalists, because of the potential dynamic efficiencies. Within industry, manufacturing is most likely to provide these dynamic efficiencies. The concern of new developmentalists with manufacturing remains well placed, as an extensive analysis of the data in the concluding chapter suggests a decline or no change in manufacturing for two thirds of the low- and middle-income countries in the post-WTO period (1995–2007) compared to the 1980–94 period. However, in principle, there is no need for an exclusive focus on industry, with the important qualification made above that, in order to be fundame...

Table of contents

• Routledge Studies in Development Economics
• Contents
• Figures
• Tables
• Contributors
• Acknowledgments
• Part I Introduction
• Part II Conceptual issues and a new developmentalist agenda
• Part III Neo-liberal constraints on the policy agenda
• Part IV Case studies in pro-active government
• Part V Conclusion
• Index