From Wikipedia, the free 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. Johnson defined the developmental state as a state that is focused on economic development and takes necessary policy measures to accomplish that objective. He argued that Japan's economic development had much to do with far-sighted intervention by bureaucrats, particularly those in the Ministry of International Trade and Industry (MITI). 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 cannot.
Governments in developmental states invest and mobilize the majority of capital into the most promising industrial sector that will have maximum spillover effect for the society. Cooperation between state and major industries is crucial for maintaining stable macro-economy. According to Alice Amsden's Getting the Price Wrong, the intervention of state in the market system such as grant of subsidy to improve competitiveness of firm, control of exchange rate, wage level and manipulation of inflation to lowered production cost for industries caused economic growth, that is mostly found in late industrializers countries but foreign to early developed countries.
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.
SA’s version of “the developmental state” a parody – Silkewhatsapp
Three words slapped me across the side of the head in reading Daniel Silke’s excellent pre-State of the Nation address analysis. Talking about the ANC’s constant punting of ‘the developmental economy,’’ and how they either threaten or entice, he says the State must first deliver by example and show that it’s “efficient, trustworthy and transparent”. Right there, for me, his argument is made – and by the time you’ve read that, he’s built a fortress-like case. We have a tragic strike-out on all three fronts. It sets one wondering; has the ANC learnt nothing from adaptive socialist states across the world that are now thriving economic hubs? When you see the posturing and ideological attacks on our increasingly constrained private sector, it seems we’re caught in a time warp. We’ve heard from Alec Hogg how Madiba did a 360-degree turn in his economic approach after talking to an influential and admired socialist leader at Davos all those years ago. We also know what’s happened since, as Mandela’s “kids in the candy shop,’ stuffed themselves to collective obesity, exposing us all to the ensuing range of societal ‘diseases’ among which are the antonyms to Silke’s three requirements. So, when Zuma gives his State of the Nation address next Thursday, remember this analysis in translating the rhetoric – it may serve you well. – Chris Bateman
By Daniel Silke
It’s that time of year again. In preparation for the State of the Nation address and in an attempt to set yet another policy agenda for the coming year, the ANC and President Zuma have been talking up the notion of a ‘state-managed developmental economy’.
The term may be loosely defined as economic planning and implementation undertaken by the state and using state resources or influence to counter poverty, inequality and in South Africa’s case, racial bias in the ownership of the economy.
For the last decade, the term has been dangled as either a carrot or a stick – to promise economic transformation to those in need and to threaten those perceived as the exploiters. Ultimately, what attempts we have seen viz a vie developmental – or its synonym, ‘radical economic transformation’ have offered few, if any examples of success.
But, that’s not to say that the state has no role and should be prevented from intervening. Indeed, an efficient, trustworthy and transparent state can augment the private sector and modify the negative effects of unbridled capitalism.
And there’s the rub. The continued bad-mouthing of capitalism and big-business pits this group against those ‘statists’ in favour of a developmental agenda. Ideally, South Africa needs a thriving corporate sector, an enabled small-business or nascent entrepreneurial component and a state capable of best practice in the implementation of both policy and delivery on the ground.
The current framework satisfies no-one. Attacks on the corporate sector continue to hamper their domestic inward investment and resultant job creation. The fledgling entrepreneurs of this country encounter labour, taxation, regulatory and input cost challenges that set them back. And, most importantly, the state’s propensity to deliver efficiently is highly suspect.
It is precisely the ability of the state to really deliver in a reliable and investor-friendly manner that leads one to question a looming ‘developmental’ shift.
For starters, the state needs to be less ideological. It needs to embrace the requirements of business and demands of global finance in its own regulatory endeavours. Without that, flawed banking regulations, confidence-sapping mining charters, moribund state-owned enterprises and a host of inefficient government agencies will simply erode the ability of the state to distribute to the poor – but instead just allow it to keep its own cronies happy.
A developmental state can only prosper in a climate of cross-sectoral and investor buy-in. Encouraging the corporatist interests should be seen as critical in building and creating wealth. Yes, the state can ameliorate the inequalities that exist through a more effective distribution of resources to the broader society – but without the wealth creation aspect of the economy, this will come to naught.
In order to equitably distribute cumulative wealth and uplift the lives of those in need, the wealth needs to be created in the first place. With onerous regulations, investor-unfriendly policies and a deficient state beholden unto rent-seekers rather than the real poor, a developmental approach is doomed to failure. So as we move towards the President’s Opening of Parliament next week, it behoves us all to look beyond the headline rhetoric and assess what we can do better. And what we need is an holistic approach from the state taking government, the unions and both the domestic and foreign private sector on board. Simply put, a unilateralist approach of bad regulation and uncompetitive policy is the last thing we need.
State intervention should be something we all desire – after all, if we lived in Finland or Sweden or even in South Korea and Taiwan of the 1960’s, we might all be the biggest proponents of the developmental state. If we trust government through their outstanding examples, it all becomes so much easier.
In the South African context, government has yet to earn our trust to take on these tasks. Until that time, developmental policy-making will be problematic – not just because it causes doubts about policy coherence but because the examples we have thus far, have been so disastrously implemented in the past.
Perhaps, before you ratchet up the notion of the developmental economy – you had better make sure that your existing developmental agencies are thoroughly cleansed. Now that might qualify as real radical transformation.
State companies can’t help development if the state is a partisan player
September 8, 2016
Senior Lecturer in Political Science, Stellenbosch University
State-owned enterprises are legal entities required to take on commercial and development activities for the government. They tend to be hybrid by nature in that they have a business mandate with a profit aim combined with a development, social or service delivery mandate.
In South Africa’s case there is a particular emphasis on state-owned enterprises contributing to the goals of a developmental state. This development mandate is not unique to South Africa. Governments worldwide use state-owned companies as catalysts for growth, development and employment. The enterprises are also becoming increasingly influential in the global market. China’s state companies are notable examples.
State-owned enterprises, also known as parastatals, generally have one shareholder: the state. In South Africa, the respective cabinet ministers act as shareholders on behalf of the state, thus maintaining political oversight of them. The shareholding minister is, in turn, accountable to parliament.
Parastatals are funded from the public purse. As an indirect shareholder, the public has a legitimate interest in their workings. That’s why the relevant minister needs to be cognizant that he or she “promotes the public interest”.
But South Africa’s parastatals are in a dire state. Instead of being the mandated sites of development and profitability, they are costing the country and the public purse billions. In the 2014/2015 financial year, they made a combined loss of R15,5 billion.
Some of South Africa’s state-owned enterprises are being used for personal ends by individuals within the ruling African National Congress. The root of the problem is that the principle of impartiality has been transgressed. Instead, the state is being used as a partisan role player, notably in the distribution of patronage.
Political interference
Two tangible examples illustrate this: the South African Broadcasting Corporation (SABC) and South African Airways (SAA). After disentangling the chaos, dismal performances, financial mismanagement and blatant lack of accountability at these entities, links to President Jacob Zuma become clear.
Mismanagement has left the public broadcaster in financial trouble. This has been blamed on the fact that its controversial Chief Operations Officer, Hlaudi Motsoeneng, enjoys political protection.
In 2014 Public Protector Thuli Madonsela made adverse findings against Motsoeneng. Despite this, he was appointed permanently to the post of chief operations officer by communications minister Faith Muthambi.
Motsoeneng has undermined the central role of the SABC - that is, to be a public broadcaster. For example, he has instructed journalists that 70% of the broadcaster’s news output must be “positive”. He has also insisted that Zuma be given special treatment.
SAA has a similarly sad tale. The national airline incurred a R2,5 billion loss in the 2013/14 financial year. It has failed to submit financial statements for the past two years and is technically insolvent. Although several of its board members laid complaints against its chairperson Dudu Myeni, no action has been taken against her. Instead, they were summarily removed from their positions. And Myeni has been reappointed chairperson.
Myeni is close to Zuma and serves as chairperson of his charity, the Jacob Zuma Foundation.
Tensions between state and government
The fair distribution of, and access to, public goods in the public interest requires an autonomous or impartial state. Impartiality disqualifies corruption, cronyism, patronage, nepotism, political favoritism and discrimination.
There is considerable tension between the notion of an impartial state – a core value embedded in South Africa’s 1996 constitution – and the political use of the state for partisan ends, or in the case of the state-owned enterprises, for personal ends.
Impartiality means being unmoved by considerations such as special relationships and personal preferences.
A crucial part of ensuring impartiality is to maintain the distinction and jurisdictional boundary between the state and government. The political administration of government can change as a result of elections while the state machinery is a distinct set of supportive institutions. These institutions need to continue to operate regardless of changes in political administration.
Governments come and go, while the state remains. It is essential for there to be state autonomy - a precondition for state agencies and personnel acting in the public interest. When state-government lines become blurred the state loses its autonomy, and so its neutrality. When the state becomes “captured” it can be used for partisan ends – serving the purposes or whims of the governing party or its leaders.
The ultimate irony
Even though the recent Presidential Review of state-owned entities acknowledged the need for “neutrality” and “independent autonomy”, Zuma has been named as chairperson of a new coordinating committee that will oversee South Africa’s parastatals.
The move is possibly a strategy to undermine Deputy President Cyril Ramaphosa, who has since 2014 had political oversight over state companies. This could also be part of the ongoing factional divisions within the ANC. More pertinently though, it will give Zuma more say in the bailing out of parastatals and a closer eye over his personal interests.
If South Africa’s parastatals are to fulfil their developmental mandate and be good stewards of the public purse, they must stop being used for partisan ends – even the president’s.
The long-term trajectory of not abiding by the principle of impartiality is that state institutions and resources are used for partisan ends. This makes the political contest for governing power a zero-sum game. Access to the political administration becomes tantamount to access to resources for partisan gain, as opposed to being stewards of public resources for the public interest.