Developmental state
Encyclopedia
Developmental state, or hard state, is a term used by international political economy
scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia
in the late twentieth century. In this model of capitalism
(sometimes referred to as state development capitalism), the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterized by having strong state intervention, as well as extensive regulation and planning. The term has subsequently been used to describe countries outside East Asia which satisfy the criteria of a developmental state. Botswana
, for example, has warranted the label since the early 1970s. The developmental state is sometimes contrasted with a predatory state or weak state.
The first person to seriously conceptualize the developmental state was Chalmers Johnson
. He wrote in his book "MITI and the Japanese Miracle":
A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market.
In contrast, a developmental state intervenes more directly in the economy through a variety of means to promote the growth of new industries and to reduce the dislocations caused by shifts in investment and profits from old to new industries. In other words, developmental states can pursue industrial policies, while regulatory states generally can not.
As in the case of Japan
, there is little government ownership of industry, but the private sector is rigidly guided and restricted by bureaucratic government elites. These bureaucratic government elites are not elected officials and are thus less subject to influence by either the corporate-class or working-class through the political process. The argument from this perspective is that a government ministry can have the freedom to plan the economy and look to long-term national interests without having their economic policies disrupted by either corporate-class or working-class short-term or narrow interests.
in the last few decades have been found in East
and Southeast Asia
. China
, South Korea
, Japan
, India
, Thailand
, Taiwan
, Vietnam
, Malaysia, Singapore
, Philippines
, and Indonesia
are developing at high to moderate levels. Thailand, for example, has grown at double-digit rates most years since the early 1980s. China has been the world leader in economic growth
since 2001. In 2010, India's growth finally overtook China's. It is estimated that it took England
around 60 years to double its economy when the Industrial Revolution
began. It took the United States
around 50 years to double its economy during the American economic take-off in the late nineteenth century. Several East and Southeast Asian countries today have been doubling their economies every 10 years.
It is important to note that in most of these Asian countries, it is not just that the rich are getting richer, but the poor are becoming less poor. For example, poverty
has dropped dramatically in Thailand. Research in the 1960s showed that 60 percent of the people in Thailand lived below a poverty level estimated with cost of basic necessities. By 2004, however, similar estimates showed that poverty there was around 13 to 15 percent. Thailand has been shown by some World Bank
figures to have had the best record for reducing poverty per increase in GNP
of any nation in the world.
When viewed through the lens of dependency theory
, developmentalism is about countries such as Thailand
, Taiwan
, Malaysia, South Korea
, and increasingly Vietnam
, where the governments are able and willing to protect their people from the negative consequences of foreign corporate exploitation. They tend to have a strong government, also called a developmental state or hard state and have leaders who can confront multinationals and demand that they operate to protect their people’s interests. These “development states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they may follow domestically-mandated standards for pay and labor conditions, pay reasonable taxes, and by extension leave some profits within the country.
Specifically, what is meant by a developmental state, is a government with sufficient organization and power to achieve its development goals. There must be a state with the ability to prove consistent economic guidance and rational and efficient organization, and the power to back up its long-range economic policies. All of this is important because the state must be able to resist external demands from outside multinational corporations to do things for their short-term gain, overcome internal resistance from strong groups trying to protect short-term narrow interests, and control infighting within the nation pertaining to who will most benefit from development projects.
owned by Japan
ese and American corporations. They found that most of the employees in these corporations made more than the average in Thailand, and substantially more than the $4.40 a day minimum wage
in the country at the time. The researchers’ analysis of over 1,000 detailed questionnaires indicated that the employees rate their income and benefits significantly above average compared to Thai-owned factories. They found the working conditions in all 24 companies far from conditions reported about Nike
in Southeast Asia.
One answer to the discrepancies found between multinational corporations in Thailand
and the conditions described for Nike
workers is that companies such as Wal-Mart
, The Gap
, or Nike subcontract work to small local factories. These subcontractors remain more invisible, making it more easy to bribe
local officials to maintain poor working conditions. When multinational corporations set up business in countries like Malaysia, Taiwan
, or Thailand
, their visibility makes much less likely employees will have wages and conditions below the standards of living of the country.
Thailand is said to fall between the U.S. model where government has little involvement in economic policy, and Japan which has governed with a very heavy hand for more than 100 years. One focus of Thai development policies was on import substitution
. Here, a development state must be able to tell multinational corporations that goods will be imported, if at all, with tariffs as high as 80 to 150 percent to prevent these goods from competing with goods made in (at least at first) less efficient infant factories in the poorer country. Only a development state can have the influence to enforce such a policy on rich multinational corporations (and their governments), and only a development state can have the influence to enforce such a policy against the demands of their own rich citizens who want the imported goods and want them then at a cheaper price, not waiting for infant industries to produce suitable products. Thailand began placing tariffs of 150 percent on important automobiles, but at the same time telling the foreign auto industries that if they came to Thailand to create joint ventures with a Thai company to build cars—and thus hire Thai employees, pay Thai taxes, and keep some profits within Thailand—the auto company would get many forms of government assistance.
Thailand continued to protect its economy during the 1980s and 1990s despite the flood of foreign investment the nation had attracted. Thai bureaucrats started rules such as those demanding a sufficient percentage of domestic content in goods manufactured by foreign companies in Thailand and the 51 percent rule. Under the 51 percent rule, a multinational corporation starting operations in Thailand must form a joint venture with a Thai company. The result is that a Thai company with 51 percent control is better able to keep jobs
and profits
in the country. Countries such as Thailand have been able to keep foreign investors from leaving because the government has maintained more infrastructure
investment to provide good transportation and a rather educated labor force
, enhancing productivity
.
, similar structures began to appear in Latin America
. The "Latin American" approach is different, however, as it often takes place at a city/municipal level, rather than at a state level and places a great emphasis on tackling social exclusion. One pioneer in this experience has been Medellin
, whose experience with a local development state has been highly praised by researchers at the Overseas Development Institute
. Medellin's city administration used its ownership of city's main energy provider Empresas Publicas de Medellín (EPM) and diverted 30% of EPM's profits to fund municipal spending. The spending went partly on a variety of infrastructure projects, such as the city's metro, bus network and a cable car
system connecting the poorer barrio communities to the city centre. However, the city also developed a program of cash grants called 'the Medellín Solidaria' programme that are very similar to Brazil
's highly successful Bolsa Familia
that provide support for poor families. Additionally, the city developed the Cultura E programme that established a network of 14 publicly-funded business support centres known as CEDEZO, Centros de Desarrollo Empresarial Zonal. The CEDEZOs are found in the poorest areas of Medellin and support the poor in developing business by providing free-of-charge business support services and technical advice. Also, as part of Cultura E, there is Banco de las Oportunidades that provides microloans (up to $2,500 at a cheap interest rates 0.91% monthly). This has helped create more equal opportunities for all and overcome the barriers to entry to business for poor entrepreneurs with good ideas, but lacking capital, skills and connections. It has also helped develop the local economy with new micro-enterprises. However, several mayoral candidates for the October 2011 elections have argued the Banco de las Oportunidades's interest rates are too high, loan maturity is too short and it should have grace period
s. They therefore suggest a new small and medium-sized enterprise (SME) development bank to complement the Banco de las Oportunidades.
in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance
, reliance on trickle-down economic development and a host of other strategies will not work.”
International political economy
International political economy , also known as global political economy, is an academic discipline within the social sciences that analyzes international relations in combination with political economy. As an interdisciplinary field it draws on many distinct academic schools, most notably ...
scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia
East Asia
East Asia or Eastern Asia is a subregion of Asia that can be defined in either geographical or cultural terms...
in the late twentieth century. In this model of capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
(sometimes referred to as state development capitalism), the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterized by having strong state intervention, as well as extensive regulation and planning. The term has subsequently been used to describe countries outside East Asia which satisfy the criteria of a developmental state. Botswana
Botswana
Botswana, officially the Republic of Botswana , is a landlocked country located in Southern Africa. The citizens are referred to as "Batswana" . Formerly the British protectorate of Bechuanaland, Botswana adopted its new name after becoming independent within the Commonwealth on 30 September 1966...
, for example, has warranted the label since the early 1970s. The developmental state is sometimes contrasted with a predatory state or weak state.
The first person to seriously conceptualize the developmental state was Chalmers Johnson
Chalmers Johnson
Chalmers Ashby Johnson was an American author and professor emeritus of the University of California, San Diego. He served in the Korean War, was a consultant for the CIA from 1967–1973, and chaired the Center for Chinese Studies at the University of California, Berkeley from 1967 to 1972...
. He wrote in his book "MITI and the Japanese Miracle":
In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developmental functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of business-government relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates.
A regulatory state governs the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behavior to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power, and by providing collective goods (such as national defense or public education) that otherwise would be undersupplied by the market.
In contrast, a developmental state intervenes more directly in the economy through a variety of means to promote the growth of new industries and to reduce the dislocations caused by shifts in investment and profits from old to new industries. In other words, developmental states can pursue industrial policies, while regulatory states generally can not.
As in the case of Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, there is little government ownership of industry, but the private sector is rigidly guided and restricted by bureaucratic government elites. These bureaucratic government elites are not elected officials and are thus less subject to influence by either the corporate-class or working-class through the political process. The argument from this perspective is that a government ministry can have the freedom to plan the economy and look to long-term national interests without having their economic policies disrupted by either corporate-class or working-class short-term or narrow interests.
Characteristics of the Developmental state
- Emphasis on market shareMarket shareMarket share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...
over profitProfit (economics)In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total... - Economic nationalismEconomic nationalismEconomic nationalism is a term used to describe policies which emphasize domestic control of the economy, labor and capital formation, even if this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital. It opposes globalization in many cases, or at...
- ProtectionProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
of fledging domestic industries - Focus on foreign technology transferTechnology transferTechnology Transfer, also called Transfer of Technology and Technology Commercialisation, is the process of skill transferring, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments or universities and other institutions to ensure that...
- Large government bureaucracy
- Alliance between the state, labour and industry called corporatismCorporatismCorporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
- Skepticism of neoliberalismNeoliberalismNeoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
and the Washington ConsensusWashington ConsensusThe term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries... - Prioritization of economic growth over political reform
- Legitimacy and Performance
- Emphasis on technical education
Examples of Developmental States in East and Southeast Asia
Some of the best prospects for economic growthEconomic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
in the last few decades have been found in East
East Asia
East Asia or Eastern Asia is a subregion of Asia that can be defined in either geographical or cultural terms...
and Southeast Asia
Southeast Asia
Southeast Asia, South-East Asia, South East Asia or Southeastern Asia is a subregion of Asia, consisting of the countries that are geographically south of China, east of India, west of New Guinea and north of Australia. The region lies on the intersection of geological plates, with heavy seismic...
. China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
, South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
, Malaysia, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
, and Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
are developing at high to moderate levels. Thailand, for example, has grown at double-digit rates most years since the early 1980s. China has been the world leader in economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
since 2001. In 2010, India's growth finally overtook China's. It is estimated that it took England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
around 60 years to double its economy when the Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
began. It took the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
around 50 years to double its economy during the American economic take-off in the late nineteenth century. Several East and Southeast Asian countries today have been doubling their economies every 10 years.
It is important to note that in most of these Asian countries, it is not just that the rich are getting richer, but the poor are becoming less poor. For example, poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
has dropped dramatically in Thailand. Research in the 1960s showed that 60 percent of the people in Thailand lived below a poverty level estimated with cost of basic necessities. By 2004, however, similar estimates showed that poverty there was around 13 to 15 percent. Thailand has been shown by some World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
figures to have had the best record for reducing poverty per increase in GNP
GNP
Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...
of any nation in the world.
When viewed through the lens of dependency theory
Dependency theory
Dependency theory or dependencia theory is a body of social science theories predicated on the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former...
, developmentalism is about countries such as Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, Malaysia, South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
, and increasingly Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
, where the governments are able and willing to protect their people from the negative consequences of foreign corporate exploitation. They tend to have a strong government, also called a developmental state or hard state and have leaders who can confront multinationals and demand that they operate to protect their people’s interests. These “development states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they may follow domestically-mandated standards for pay and labor conditions, pay reasonable taxes, and by extension leave some profits within the country.
Specifically, what is meant by a developmental state, is a government with sufficient organization and power to achieve its development goals. There must be a state with the ability to prove consistent economic guidance and rational and efficient organization, and the power to back up its long-range economic policies. All of this is important because the state must be able to resist external demands from outside multinational corporations to do things for their short-term gain, overcome internal resistance from strong groups trying to protect short-term narrow interests, and control infighting within the nation pertaining to who will most benefit from development projects.
Thailand
In the late 1990s a study was conducted in which the researchers interviewed people from 24 large factories in ThailandThailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
owned by Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
ese and American corporations. They found that most of the employees in these corporations made more than the average in Thailand, and substantially more than the $4.40 a day minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
in the country at the time. The researchers’ analysis of over 1,000 detailed questionnaires indicated that the employees rate their income and benefits significantly above average compared to Thai-owned factories. They found the working conditions in all 24 companies far from conditions reported about Nike
Nike, Inc.
Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered near Beaverton, Oregon, which is part of the Portland metropolitan area...
in Southeast Asia.
One answer to the discrepancies found between multinational corporations in Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
and the conditions described for Nike
Nike, Inc.
Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered near Beaverton, Oregon, which is part of the Portland metropolitan area...
workers is that companies such as Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
, The Gap
Gap (clothing retailer)
The Gap, Inc. is an American clothing and accessories retailer based in San Francisco, California, and founded in 1969 by Donald G. Fisher and Doris F. Fisher. The company has five primary brands: the namesake Gap banner, Banana Republic, Old Navy, Piperlime and Athleta. As of September 2008,...
, or Nike subcontract work to small local factories. These subcontractors remain more invisible, making it more easy to bribe
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
local officials to maintain poor working conditions. When multinational corporations set up business in countries like Malaysia, Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, or Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, their visibility makes much less likely employees will have wages and conditions below the standards of living of the country.
Thailand is said to fall between the U.S. model where government has little involvement in economic policy, and Japan which has governed with a very heavy hand for more than 100 years. One focus of Thai development policies was on import substitution
Import substitution
Import substitution industrialization or "Import-substituting Industrialization" is a trade and economic policy that advocates replacing imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of...
. Here, a development state must be able to tell multinational corporations that goods will be imported, if at all, with tariffs as high as 80 to 150 percent to prevent these goods from competing with goods made in (at least at first) less efficient infant factories in the poorer country. Only a development state can have the influence to enforce such a policy on rich multinational corporations (and their governments), and only a development state can have the influence to enforce such a policy against the demands of their own rich citizens who want the imported goods and want them then at a cheaper price, not waiting for infant industries to produce suitable products. Thailand began placing tariffs of 150 percent on important automobiles, but at the same time telling the foreign auto industries that if they came to Thailand to create joint ventures with a Thai company to build cars—and thus hire Thai employees, pay Thai taxes, and keep some profits within Thailand—the auto company would get many forms of government assistance.
Thailand continued to protect its economy during the 1980s and 1990s despite the flood of foreign investment the nation had attracted. Thai bureaucrats started rules such as those demanding a sufficient percentage of domestic content in goods manufactured by foreign companies in Thailand and the 51 percent rule. Under the 51 percent rule, a multinational corporation starting operations in Thailand must form a joint venture with a Thai company. The result is that a Thai company with 51 percent control is better able to keep jobs
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
and profits
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
in the country. Countries such as Thailand have been able to keep foreign investors from leaving because the government has maintained more infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
investment to provide good transportation and a rather educated labor force
Labor force
In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...
, enhancing productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
.
Local Developmental State
While the developmental state is associated with East Asia, it has been argued that after 30 years of many negative experiences with the Washington ConsensusWashington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
, similar structures began to appear in Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
. The "Latin American" approach is different, however, as it often takes place at a city/municipal level, rather than at a state level and places a great emphasis on tackling social exclusion. One pioneer in this experience has been Medellin
Medellín
Medellín , officially the Municipio de Medellín or Municipality of Medellín, is the second largest city in Colombia. It is in the Aburrá Valley, one of the more northerly of the Andes in South America. It has a population of 2.3 million...
, whose experience with a local development state has been highly praised by researchers at the Overseas Development Institute
Overseas Development Institute
The Overseas Development Institute is one of the leading independent think tanks on international development and humanitarian issues. Based in London, its mission is "to inspire and inform policy and practice which lead to the reduction of poverty, the alleviation of suffering and the achievement...
. Medellin's city administration used its ownership of city's main energy provider Empresas Publicas de Medellín (EPM) and diverted 30% of EPM's profits to fund municipal spending. The spending went partly on a variety of infrastructure projects, such as the city's metro, bus network and a cable car
Cable car
A cable car is any of a variety of transportation systems relying on cables to pull vehicles along or lower them at a steady rate, or a vehicle on these systems.-Aerial lift:Aerial lifts where the vehicle is suspended in the air from a cable:...
system connecting the poorer barrio communities to the city centre. However, the city also developed a program of cash grants called 'the Medellín Solidaria' programme that are very similar to Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
's highly successful Bolsa Familia
Bolsa Família
Bolsa Família is a social welfare program of the Brazilian government, part of the Fome Zero network of federal assistance programs. Bolsa Família provides financial aid to poor Brazilian families; if they have children, families must ensure that the infants attend school and are vaccinated...
that provide support for poor families. Additionally, the city developed the Cultura E programme that established a network of 14 publicly-funded business support centres known as CEDEZO, Centros de Desarrollo Empresarial Zonal. The CEDEZOs are found in the poorest areas of Medellin and support the poor in developing business by providing free-of-charge business support services and technical advice. Also, as part of Cultura E, there is Banco de las Oportunidades that provides microloans (up to $2,500 at a cheap interest rates 0.91% monthly). This has helped create more equal opportunities for all and overcome the barriers to entry to business for poor entrepreneurs with good ideas, but lacking capital, skills and connections. It has also helped develop the local economy with new micro-enterprises. However, several mayoral candidates for the October 2011 elections have argued the Banco de las Oportunidades's interest rates are too high, loan maturity is too short and it should have grace period
Grace period
A grace period is a time past the deadline for an obligation during which a late penalty that would have been imposed is waived. Grace periods, which can range from a number of minutes to a number of days or longer, depending on the context, can apply in various situations, including arrival at a...
s. They therefore suggest a new small and medium-sized enterprise (SME) development bank to complement the Banco de las Oportunidades.
Difficulties
There are difficulties with the local development state model. Despite claims at the end of the 1980s by some, such as Hernando de Soto (1989) that micro-enterprises would lead economic growth, this has not come to pass. For instance, in Medellín the informal sector has seen a huge growth in micro-enterprises, but the impact on poverty and development has been minimal. Almost none of these microenterprises have evolved into informal small or medium businesses, as the demand does not exist to absorb increased production. In other words, a successful ice-cream producer producing 30 ice-creams per day at home may sell all their product and make a livelihood out of it, but transforming it into a business, incurring the costs of mechanisation in order to produce perhaps 300, may not be worthwhile if there is no demand for so many ice-creams. Failure rates are very high and the debt incurred by owners becomes unmanageable. Recognising which micro-enterprises have a high potential is extremely difficult and the costs involved in providing business support and advise are very high. There is a great difficulty in identifying demand, especially on a global level and demand patterns are constantly changing. The limited ability of city administrations to gather enough resources to support businesses and make sound investments can be problematic.Public Recognition
Despite all the evidence of the importance of a development state, some international aid agencies have just recently publicly recognized the fact. The United Nations Development Program, for example, published a report in April 2000 which focused on good governanceGood governance
Good governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...
in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance
Good governance
Good governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...
, reliance on trickle-down economic development and a host of other strategies will not work.”
See also
- DirigismeDirigismeDirigisme is an economy in which the government exerts strong directive influence. While the term has occasionally been applied to centrally planned economies, where the state effectively controls both production and allocation of resources , it originally had neither of these meanings when...
- Economic developmentEconomic developmentEconomic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
- Economic interventionismEconomic interventionismEconomic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...
- Four Asian Tigers
- Good governanceGood governanceGood governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...
- International political economyInternational political economyInternational political economy , also known as global political economy, is an academic discipline within the social sciences that analyzes international relations in combination with political economy. As an interdisciplinary field it draws on many distinct academic schools, most notably ...
- Japanese post-war economic miracleJapanese post-war economic miracleThe Japanese post-war economic miracle is the name given to the historical phenomenon of Japan's record period of economic growth following World War II, spurred mainly by Japanese economic policy, in particular through the Ministry of International Trade and Industry...
- Poverty reductionPoverty reductionPoverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....
- State capitalismState capitalismThe term State capitalism has various meanings, but is usually described as commercial economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or...
Sources
- Meredith Woo-Cumings. (1999). The Developmental State. Cornell University Press.
- Peter Evans. (1995). Embedded Autonomy: States and Industrial Transformation. Princeton: Princeton University Press. Ch. 1.
- Polidano C. (2001). Don’t Discard State Autonomy: Revisiting the East Asian Experience of Development. Political Studies. Vol. 49. No.3. 1: 513-527.
- Ziya Onis. (1991). The Logic of the Developmental State. Comparative Politics. 24. no. 1. pp. 109–26.
- Mark Thompson. (1996). Late industrialisers, late democratisers: developmental states in the Asia-Pacific. Third World Quarterly. 17(4): 625-647.
- John Minns. (2001). Of miracles and models: the rise and decline of the developmental state in South Korea. Third World Quarterly. 22(6): 1025-1043.
- Joseph Wong. (2004). The adaptive developmental state in East Asia. Journal of East Asian Studies. 4: 345-362.
- Yun Tae Kim. (1999). Neoliberalism and the decline of the developmental state. Journal of Contemporary Asia. 29(4): 441-461.
- Linda Weiss. (2000). Developmental States in Transition: adapting, dismantling, innovating, not 'normalising'. Pacific Review. 13(1): 21-55.
- Robert Wade. (2003). What strategies are viable for developing countries today? The World Trade Organization and the shrinking of 'development space'. Review of International Political Economy. 10 (4). pp. 621–644.