Future economics:
Role of the State in development today
by Sunil Bastian
When it comes to the role of the State in development, Sri Lanka has
witnessed an extremely sterile debate that has formulated the question
as a choice between the State and the market.
There are champions on both sides, increasingly encrusted in their
ideological positions. The purpose of these comments is to try and break
through this debate; it does not seem pave the way for new thinking,
even though the discussion at international level has moved on beyond
this framework.
In the late seventies and early eighties the world witnessed a
revolution in development thinking.
At the centre of this was extreme optimism in the efficiency of
markets, and the benefits of a non-distorted price system and private
sector for achieving sustained development on their own. At the
political level these views were expressed by the Reagan administration
in the US and Thatcher government in the UK.
The World Bank’s version of these policies, which had a great
influence in the developing world, was structural adjustment policies
aimed at limiting state involvement in economic development. The state
was to withdraw from the production sphere, stop intervening in the
price mechanism, and generally reduce its expenditure.
Philosophically these extreme versions of liberalism are drawn from
the thinking of liberal fundamentalists such as Friedrich Hayek and
Robert Nozick, for whom any form of state intervention for the purpose
of social justice is considered to be in conflict with the individual’s
inalienable rights to liberty and freedom. Hence although often promoted
as pragmatic policies, the new development thinking that promoted
markets, private enterprise and individual initiative has an underlying
worldview with assumptions about human nature and society.
A major development that paved the way for these ideas to become
dominant globally was the collapse of the Eastern European bloc led by
the Soviet Union. Ideologically, the collapse of centrally-planned state
socialism removed the only real alternative development model to
capitalism that the world had seen. It also discredited ideas about
state intervention and state planning within the policy debates.
By the mid-nineties, however, these ideas about a minimalist state
and dependence on the market began to change. Many studies on the ‘East
Asian Miracles’, including a study conducted by the World Bank,
demonstrated the effective role played by states in ensuring benefits
from the market. In 1997 the World Bank’s annual World Development
Report focused on the state and development. This report put forward a
wide-ranging agenda of reforming and developing state institutions in
order to promote a market economy.
Social scientists, who combined political economy and sociology to
take a look at the state more closely, came to a similar set of
conclusions about the important role that states have played in the
development of East Asian countries.
Perhaps the most well-known examples are the works of Peter Evans and
Robert Wade. Peter Evans in his work developed a typology of different
states – predatory, intermediate and developmental. A developmental
state is characterised by a well-developed coherent bureaucracy
connected by strong internal networks, administrative culture and the
capacity to carry out development policies. It also has a considerable
degree of autonomy vis-à-vis both the political elite and economic
interest groups in society.
This does not mean that the state is insulated completely from these
groups and the rest of society. On the contrary a developmental state
has many connections with key groups in society. However it has a
relative degree of autonomy to carry out its functions without being
captured by sectional interests.
Sri Lanka
Within these debates one of the interesting puzzles is how come some
societies are able to develop such states, but others are unable to
achieve this objective? This is an extremely relevant question for Sri
Lanka. Although more than three decades have passed since the
liberalisation of the economy, which came with a promise to bring about
a more effective role for the state in development, it is pretty clear
we are long way away from this.
By the end of the Rajapakse regime not only has the role of the state
in the economy expanded, but a new actor in the form of the armed forces
has entered into the economic sphere. In addition there are also a new
breed of state-owned private companies. They could proliferate into many
spheres crowding out the private sector.
Unfortunately the mainstream discussion, often led by economists,
does not provide an adequate answer to the puzzle of the persistence of
a significant state sector in the economy. Most often analysis of this
question amounts to lecturing political masters with material taken from
economic textbooks.
It is as if it is believed that if politicians knew their economics
better, they would desist from these actions and formulate a proper role
for the state in the economy.
A more fruitful way to go about the analysis is to identify an
ideological and social basis for the persistence of the significant role
of the state in the economy.
In Sri Lanka, a dependence on the state to drive development has come
from various political and ideological currents.
(a) Contrary to the widely-held belief that it was some idea of
socialism propagated by the Left that expanded the role of the state in
the economy, depending on the state to drive development was much more
widespread. Its origins go back to the colonial period. In the run-up to
independence, hardly any member of the future political leadership
believed in any kind of private sector-oriented laissez-faire ideology.
It is very difficult to find a commitment to this type of ideology at
any significant level. For example, the broad outline of the development
vision of the first UNP regime consisted of continuing with the
privately-owned plantation sector inherited from the colonial period,
but for the state to play a key role in industrial development as well
in improvement of the agrarian sector. In short, when the post-colonial
leaders inherited the state, the state was seen as the driver of
development.
True, from the mid-fifties the focus on the state expanded,
especially in industrialisation, but one can see a continuity before and
after the mid-fifties with regard to the vision of the state.
(b) The expansion of the state played a much more central role in the
ideologies of the Left, and the Left also helped to mainstream these
ideas in the country.
The Left’s contribution in the realm of ideas has been much more
significant than their actual control of the levers of political power.
However little is known in the country about debates within the Left,
found mainly in social science literature. Some of these writers give a
class interpretation to the expansion of the state in the economy.
For example, making use of the work of the Polish political economist
Kalecki, some writers explain the expansion of the state in the economy
using the notion of ‘intermediate regimes’ to explain the political
economy of state-dominated development policies.
Intermediate regimes have a state with a multi-class character. In
this coalition classes such as middle-level landowners, sections of the
trading class, those employed in minor positions within government and
vernacular intelligentsia play a role. Often they are the greatest
beneficiaries of the expansion of the state’s role in economy.
It is also necessary to note that perhaps the only full book-length
that characterised the major role that state played in development Sri
Lanka as state capitalism was published by a scholar from the former
Soviet Union (L.G. Ivanov) way back in 1969. Hence the debate within the
Left-oriented social science community differed from the position taken
by political parties of the traditional Left.
(c) The final ideological current that supported the expansion of the
state is Sinhala nationalism. The nationalist character of the demand
for state expansion is unmistakable in the rhetoric of anti-imperialism.
For the Sinhala nationalists, the state was important to achieve various
nationalist goals like redressing economic discrimination committed
during the colonial period and protecting the economy from foreign
domination.
The nationalist sections of capital also support this position.
Therefore, the state-centric development ideology formed an integral
element of the nation-building thesis in the post-colonial period.
The persistence of a highly centralised, dysfunctional state, now
saddled with significant defence expenditure, will create its own
contradictions for sustainable economic growth in the context of global
capitalism. However given the strong ideological currents that support
this State, it is difficult to foresee its reform in purely technical
terms. The more important arena is the arena of ideological battles. It
is here we need to be active.
To put this in class terms, the persistence of a large-scale state
sector benefits intermediate classes employed within the state, cronies
who benefit due to various favours given by the state, and politicians
for whom access to state resources is an essential means of maintaining
power.
But when we look at the fate of marginalised groups such as the small
peasantry and the working class spread across the country, those engaged
in small-scale self-employment, women whose labour power forms the basis
of the economy, and various other social groups marginalised due to
caste, class or ethnic characteristics, can we maintain the argument
that this unreformed state is a vehicle of social justice? The answer is
certainly no. It is this type of debate that we need to promote in order
to reform the state.
State, market and inequality
As much as the role of the state in the process of development has to
be reviewed, the responsibility of the state in relation to the social
dimensions of growth also needs to be opened up for debate. However in
this area one positive aspect is, despite earlier efforts to reduce the
role of the state in social policies, very few would argue in such terms
today. Especially in Sri Lanka, there is resistance to reducing the role
of the state in welfare.
One major reason for this is that Sri Lanka has a long tradition of
the state playing a significant role in welfare issues. This has
developed to the extent that some characterise Sri Lanka as a welfare
state. Most of the policies that underpin this idea began during the
colonial period. There were several strands in social policy legitimised
in different ways. For example, at one time all households in Sri Lanka
were entitled to a basket of food items at a subsidised rate. The basic
argument was the need to ensure a minimum level of nutrition to the
entire population. Second, a range of policies developed to support the
smallholder peasantry engaged in agriculture. This was defended by a
number of arguments, including a nationalist discourse of preserving a
particular mode of living that was seen as the bedrock of Sri Lankan
society. Third, state investment in education in order to ensure access
to education especially in rural areas. This had a strong distributive
argument, with roots going back to the highly unequal, almost two-tier,
education system that prevailed during the colonial period. Finally,
provision of health facilities was also seen as a basic responsibility
of the state.
These policies did achieve results. Many of the social development
indicators often touted as a success story of Sri Lanka are a result of
these policies. Of course they had their limitations and contradictions.
Some of them became costly for an underdeveloped economy. Sometimes
benefits were mediated through the social structure, the better-off
sections of the population benefited most. But it is important to note
that the very presence of these policies created a rich discourse on
welfare and the role of the state. As shown above, the underlying
arguments about these policies covered several dimensions.
The advent of structural adjustment completely changed the discourse
of social policies. At the beginning the focus was on what were called
targeted safety nets. The implication of this terminology is that these
measures were meant to safeguard the poor from the impact of reforms
brought about under structural adjustment. This was supposed to be the
main role that the state should play vis-à-vis the poor, while in the
long run economic growth took place and the benefits trickled down to
the poor.
This was followed by discourse of poverty alleviation. This too was
targeted, but the objective went beyond a safety net. Sri Lanka has seen
several such poverty alleviation programmes. .These programmes utilised
an elaborate methodology, using the methods of participatory ideology
that became fashionable in development circles in order to choose people
and support, in most cases, various programmes of self-employment. In
addition to the programmes that were implemented by the state, many
non-state actors were involved in such programmes. They have generated
various types of studies and evaluations, and the record seems to be
uneven. For example, Sri Lanka seems to have reduced the number of
households below the poverty line, at least in some parts of the
country. An interesting research question to ask is how much these
efforts at poverty alleviation have contributed to this result, and how
much has been due to other factors like new employment opportunities,
wages, and the prices people have received for their agricultural
produce. My initial hunch is factors within the development process have
been more important than poverty alleviation projects.
If we examine closely what is measured by the official poverty line,
it is the ability of a household to obtain a certain minimum level of
needs.
This is a much more conservative policy agenda compared to
distributive justice, or even the idea of protecting the peasantry,
which dominated Sri Lanka's discussion on welfare. Therefore, the
poverty alleviation discourse, whose real focus has been ensuring a
basic minimum in living standards, has been projected as a major
development achievement. It is not surprising at a popular level that
these programmes have to be legitimised through catchy phrases like
Janasaviya, Samurdhi, Gamanaguma or Divineguma.
These are all ideological constructs legitimising projects whose
results do not amount to much.Furthermore, poverty alleviation studies
always focus on individual households, without taking into account the
social and political relations within which they live. Therefore they
contribute to masking structures of power that place some people in a
marginalised position. They generally support a conservative ideology
about the possibility of gradual improvement of the conditions of the
marginalised, without significant structural or political shifts.
It is clear we need to go beyond this conservative ideology of
poverty alleviation in the current context where there is greater
recognition of inequality and the wide-ranging political implications of
social inequality.
The other side of inequality is the discussion about social mobility.
For example, what factors contribute to social mobility in a market
economy? How do these factors operate in relation to different social
groups? What can state policies do to support social mobility in
different contexts? These are more relevant questions for the debate on
social dimensions of growth than poverty alleviation.
All over the world there is a much more robust discussion about
inequality taking place.
Thomas Piketty's book Capital in the Twenty-First Century, where
analysis of inequality forms a central core, achieved the status of a
bestseller. In his last editorial even the former chief editor of a
magazine such as The Economist, which has been a steadfast supporter of
liberal economic policies, raised this issue as a key concern for global
capitalism.
In the context of a growing economy where there is manifest
injustice, in many countries inequality gets politicised as a battle
against corruption. We saw this during the last election in Sri Lanka.
Therefore, rather than poverty, we need to ask questions about
inequality and social mobility before it is too late |