Economic Development Is All About State’s Power

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Introduction

Power is an integral element in the development of a given country. Although power can be viewed from various perspectives, each perspective has a role in development. For stance, the power vested in a state can be instrumental in the development and formation of factors relevant for the facilitation of development. although some theories developed after the advent of globalization try to undervalue the role of the state because of the increasingly globalized markets, some scholars still hold on to the argument that the state’s power plays a great role in the development of a country. Their argument is founded on the thesis that states are instrumental in the formulation of markets and also in the formulation of sustainable market interactions. Consequently, this paper intends to argue out that that development is directly related to the power of the state as an entity to develop a favorable environment that stimulates the development and therefore the elimination of the State from a development plan implicates negatively on development. If the state has the power to develop the right policies, to create strong institutions, to stump out corruption, to force certain legislations that place it at an advantage et cetera, it stands great chances of faster development. As a result, the state must be empowered for a successful developmental endeavor.

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To begin with, it is very important to understand the concept of development so that a good analysis of the power of the state can be carried to identify the role of the state. What, therefore, is development? On most occasions, the word development has taken a definition that fits the context in question. To be precise, development does not possess a definition that is universally accepted. However, the different approaches seem to adopt different definitions centered upon one concept; achievement of improved quality of human life. On their part, the World Bank (2009) defines development as a concept involving the improvement of human life in terms of their economic capacity, health status, and their political freedom. Considering this definition of development, is it true that empowerment of the state can assist in achieving this?

The period between 1965 and 1995 witnessed several countries in the sub-Saharan and Asian regions plunging further into poverty. It was a pathetic period that witnessed negative growth rates and very slow characteristic growth rates for the few countries that were lucky enough to have positive growth. The people in these countries experienced increased poverty as compared to twenty years earlier. Inequalities were greatly experienced. These two phenomena resulted in all forms of mortalities, malnutrition, diseases, and many other catastrophes. Sadly, the same regions, at that period were characterized by a lack of democracy, weak political systems, a consistent abuse of human and civil rights, deep-seated corruption in several parts of the regions, et cetera (Leftwich 2001). This leaves one question to be answered. Could the political and democratic instability have been a major contributor to the negative economic growth? This question is further strengthened given the fact that most of the Asian countries later engaged in structural reforms in their political systems that eventually led to great differences in their economic development. These factors hence make it worthwhile to try and ascertain the role of political characteristics of a country and its economic development. It leads to the effort to point out whether the empowerment of the state can positively implicate the economic development of the country.

To have a better understanding of this topic, it is more responsible that one understands what a state is. This will be a positive way forward through which its role in development can be clearly defined. Chesterman et al (2005) defines a state as “an abstract yet powerful notion that embraces a network of authoritative institutions that make and enforce top-level decisions throughout a territorially defined political entity” (p.2). Considering the above definition, one very important aspect that is revealed within the state is the network of authoritative institutions. This shows that a state is made up of institutions that do not operate as independent entities but a network that operates as a system. This means that using this network of institutions, the state could have the power to make relevant decisions that address different stakeholder needs and foster development. In addition, the definition brings forward the concept of authority and decision-making in the top-level ranks. This means that a state is an entity that can be vested with powers to make decisions that can be legitimately recognized within the political entity.

Many studies have been carried out to point out the role of the State in development. To begin with, Sean (2000) argues that “the State, market and the society are embedded in each other and constructed by their interactions with one another” (p.1). This argument is further argued by Rothstein (2005) who also argues that the State is the kingpin in any economic and noneconomic development of a given country. According to him, a state with good government smoothly constructs the policies that eventually drive the economic wellbeing of the country through the empowerment of the common citizens. As a result, it becomes clear that how the government, as an entity, interacts with society and how it responds to the market needs completely translates into the developmental capacity of the country. The interaction involves the policies that are developed concerning the market and the society’s involvement in the market. This brings in the role of good governance in the topic of development. Good governance includes good policy formulation and outstanding institutional capacities. When a State is characterized by institutions that are well structured, effective, and independent, the policies formulated are very likely to favor and empower the society to participate in the market, both local and international. Consequently, this acts as a catalyst in the topic of development.

On his part, Khan (2002) approaches the topic of the state as an integral part of economic development from two important perspectives. To begin with, he argues that the state plays the role of service providers in the development stimulation. These roles include maintaining law and order within its boundaries, the formation of appropriate and reliable property rights, and the distribution of resources to promote economic development. Whenever a state fails in these roles, underperformance becomes inevitable. Furthermore, he argues that market distortion through corruption and lack of democracy can be detrimental to the performance of a country. As a result, the state must ensure that the mentioned are stumped out of their economic realms to stimulate development. Secondly, the social transformations of a country could implicate greatly the issue of economic development. Again, it is the role of the state to ensure that it formulates certain policies that will facilitate an appropriate social system that will address the issue of the collapse of the traditional systems of production and the emergence of a capitalistic economy. As a result, a good state will ensure that intervention policies are structured to control rent-management systems and the acquisition of new technologies that further facilitate the transition towards the capitalistic market approach (Hellman et al 1997).

Furthermore, Fritz and Menocal (2007) argue that the state plays a major role in developmental stimulation. Aside from good governance, the state also has the major role of developing policies that promote investment from both the local and foreign investors. In addition, the state acts as the recipient of international aid, and hence, its investment policies concerning these foreign aids can either develop or break the country economically. All these arguments are pointing out that, if empowered, the state is a fundamental aspect if there are any plans for economic development. As much as the world has been turned into a global village where the role of the state in many policy formulations has been mellowed, this does not mean that the state can be abandoned. The global markets greatly rely upon the state for effective functioning. Putting the above arguments into consideration, it is possible to ask the question; how is the state integral in the stimulation of development? What are the developmental roles played by the state as an entity, which, if empowered can promote development? In the next part of this paper, we are going to see the ways through which the state can be used as an indispensable tool for economic and noneconomic development (Khan 1995; Doner & Ramsay 2000).

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The Role of the State

The state is the only entity that can be relied upon to deliver what is referred to as legitimate violence. This points out that even though many critics could argue that globalization has led to the market force depending on the international platform, there are roles that only the government has the monopoly to enforce and even apply some force whenever necessary. These tasks include the legitimate enforcement of institutions, collection of taxes, formulation of policies for wealth and resource distribution, enforcement of social cohesion, conflict resolution et cetera (Khan 2002). Consequently, these are the building blocks for a vibrant market which on its part stimulates social, political, and economic development. While all these factors are important, they all revolve around institution enforcement. It is unarguably true that institutions within a given country form the ‘rules of the game’ in market development and sustenance. Through the institutions, policies are made which eventually promote the opportunities or create limitations for individuals and organizations that would have become potential investors. Therefore, the state plays an integral role in development through the formulation of institutions that will equally develop good policies that address property rights systems, address the issue of rents, and other development stimulators like incentive structures. Furthermore, the state-formed institutions play the role of formation of bodies that are responsible for democratic and authoritarian roles and which are capacitated to make the rules that can change the existing rules (Selle & Prakash 2009; Jomo & Gomez 2000).

Rothstein (2005) further argues concerning the role of the state in the development through the empowerment of institutions. According to him, institutional capacity plays an important role in any effective enforcement. In addition, the way the institutions make decisions that address the interests of the major groups within the society determines the effectiveness of enforcement. Equally, the state becomes an important contributor to development through its characteristic institutional ability. According to the definition of the state, as shown above, the one outstanding aspect of a state is the fact that it has authoritative institutions that correlate one with the other to come up with policies that eventually become applied to the general public. In addition, they are these institutions that eventually form the bodies that eventually develop ways through which incentives are developed within the country to stimulate investment. As a result, the state must ensure that it has institutions that are well developed and well capacitated to develop favorable policies that will stimulate development. This means that a state plays the role of developing and empowering institutions to spur development. Without the state’s empowerment of the institutions, there are high chances that effective enforcement might not be achieved. Consequently, without effective enforcement, there are no chances of economic development.

The above roles of the state place it at the core of any development-oriented strategy. Without empowering the state as an entity and factoring in economic and socio-political development, the abovementioned will be distorted. For instance, without the empowerment of the state or with poor and uninformed decisions by the state which may result in weak institutions, the country will be faced with poor policies concerning property rights systems, issues of rents will be poorly addressed while incentives like taxes and subsidies will be unaddressed. Above all, there will be no changes within the market to change the existent policies that do not stimulate development. The state must therefore take the front line in restructuring their institutions for any constructive developmental endeavor.

The fate of any economic development strategy for a given country is completely dependent on the way the interaction between the state, the society, and the market is handled (Sean 2000). Proper handling of the interaction is a guarantee to a successful strategy while the opposite is true. Sean further argues that isolation of any one of the three factors that determine the fate of development could have detrimental results. This is because the three operate in what can be termed as a multiply embedded structure that creates interdependence between them. What acts as the determining factor in the interaction of the three is the stimulation of development is founded on the dilemma of how the society, the market, and the states can be reconciled to appropriately fit in the capitalistic economy. Consequently, the availability of options from which the dilemmas can be addressed determines the outcome of a development strategy for a given country. The most important aspect of this triangular relationship that can stimulate development is embedded in how they can formulate an institutionalized set of connections that eventually act as promoters of mutual benefits between the three. With the institutionalized connections, the market policies are then shaped from the lowest local level through the national level to the highest level, the international level (Okuno-Fujiwara 1997; Rodrik 1997).

Considering the arguments above, it is without a doubt that the state is important in the attainment of a favorable development target. As argued above, the interaction between society, the market, and the state determines the fate of the development plan. However, if the dilemmas that exist between these three are solved properly through the formation of institutional connections, development becomes inevitable. But what is the institution that can spearhead the formation of these institutional connections? Without a doubt, it is the role of the state to ensure that such institutional connection setups are developed so that the market forces are developed to favor every individual beginning from the local level up to the international level. This, therefore, forms another role of the state in economic development within a country.

The other role of the state in economic development is its role in good governance. According to Rothstein (2005), good governance is an outright determinant of good institutional structure within any given country. In addition, good governance affects not only the economic characteristics of a country but also other non-economic factors that eventually implicate economic development. Among the factors promoted by good governance are the government support by the citizens, avoidance of civil war, and consolidation of democracy within the country. While earlier studies in the role of good governance on economic development had laid much emphasis on institutional dependence on good governance, recent studies have pointed out that good governance also affects the capital and resource distribution of a country. Finally, good governance has been noted to be instrumental to the formation of a culture that promotes trust and investment. This is integral to economic development. However, for all these to be achieved, the country must be experiencing good governance. Unfortunately, no good governance can be experienced without the direct and active participation of the state. It is the role of the state to ensure that it develops the right policies that promote democracy and good governance which will consequently stimulate development. As a result, the argument that the state is the center pin of economic development is given a scholarly basis. This points out that the state must be involved in the formation of institutions that promote good governance which in turn promotes peace, investment culture, and government support which are all fundamental factors in economic development (Seligson & Passe-Smith 2003).

The state acts as the front runner in the structural reformation that would spur development. This marks another role of the state in economic development. A developmental state is characterized by leadership that has a vision and which can bring about structural transformations that would within its institutions and policies that would trigger economic development (Fritz & Menocal 2007). This means that for a country to experience economic development, its leaders must be in a position to promote structural transformations without which no positive development can be achieved. Similarly, a state that is characterized by leadership that has no vision for structural transformation will be tugged into a failure. On his part, Leftwich (2001) points out that while many countries were faced with hard times between 1965 and 1995 with some countries recording negative growth rates, some countries recorded positive development reports. For instance, China and many other Asian countries like Singapore underwent structural reformations which eventually put them on the right economic track making them record positive results of development, mostly above 4%. Although the world economy was later marred by recessions and other economic development enemies, the countries still managed to stand out. Leftwich argues that the structural transformations that had occurred in the countries were permanent and that they could only be shaken but the positive outcomes of the structural adjustments were there to stay.

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This position by the scholars mentioned above makes it clear that the state is instrumental in the formation of economic development in any given state. This is guaranteed by its role as a sole entity that has legitimate power to spur structural and policy changes which are instrumental in the stimulation of economic development. While those advocating for an international system might argue that the international market forces are sufficient to trigger a positive economic development with a country, this position is debatable because such an environment is always characterized by constant changes that must be addressed to keep abreast with the other competitors within the market. To address these changes, structural transformations become completely indispensable. The country has to keep making structural reforms that address the emerging and existing challenges within the market. This means that failure to address these challenges might lead to a lack of economic development within the country. However, only one entity can develop these structural reforms and equally sustain them. This entity cannot be the international community. The only entity that has this capacity in the state. It is therefore important and true to argue that, if empowered, the state is the most important organization that can foster structural reforms that will on their part foster economic and social development (Woo-Cummings 1997; Sen 2000).

Conclusion

Considering all the above-mentioned perspectives, it is clear that no policy formulation aimed at stimulating economic development can be successful without the inclusion of the state as a major component of the strategy. This is specifically true basing on the definition of the state. According to the definition, the state is an abstract entity but has been given all the powers and authority to make the high-level decision for the betterment of its people. Secondly, the state is considered a network of institutions that work together in the development of policies that would trigger economic development. However, if the state has no power to undertake all these outlined roles, failure is very likely.

Based on this, the state hence acts as the tool by which the international aids aimed to a given country is given. This means that without the state, no foreign aid could be given out. Moreover, the aid given in addition to the other resources and benefits can only be well distributed to avoid conflicts and other strife through the state. Thirdly, the state acts as the entity which has legitimate authority to form institutions that would similarly form bodies that are responsible for the formulation of appropriate policies that are necessary for economic growth stimulation. For instance, it is the role of the institutions to promote taxation and to make structural characteristics that promote investment incentives like subsidies. Equally, the institutions can be detrimental to economic development if they cannot address all these issues. Furthermore, good governance is a fundamental factor in the stimulation of development. With good governance, there are high chances of developing good institutions, alleviating corruption, eliminating civil wars, supporting the government et cetera. It is the role of the state to promote good governance. Finally, it is the role of the state to ensure that it promotes structural reforms in its policies so that favorable policies that can stimulate economic development are developed. This is very important considering that the market is characterized by constant changes that are accompanied by new challenges. Without constant addressing of the new challenges, no economic development can be achieved. As a result, this paper argues that if empowered, the state can offer a strategic point from which economic development can be tackled. The state must be given more power to facilitate all the mentioned roles whenever addressing the issue of economic development. As much as globalization plays a great role in development, the failure of the states to have enough power to carry out the outlined roles means failure in the whole developmental strategy.

References

Chesterman, S., Ignatieff, M. & Thakur, R., 2005. Making States Work: State Failure and the Crisis of Governance. Tokyo: United Nations University Press.

Doner, R. & Ramsay, A., 2000. Rent-seeking and Economic Development in Thailand, in Mushtaq H. Khan and K.S. Jomo, eds., Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia. Cambridge: Cambridge University Press.

Fritz, V. & Menocal, A., 2007. Developmental states in the new millennium: Concepts and challenges for a new aid agenda. Development Policy Review. 25(5):531-552. Web.

Hellman, T., Murdock, K. & Stiglitz, J., 1997. Financial Restraints: Toward a New Paradigm, in Masahiko Aoki, Hyung-Ki Kim and Masahiro Okuno-Fujiwara, eds., The Role of Government in East Asian Economic Development: Comparative Institutional Analysis. Oxford: Clarendon Press.

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Jomo, K.S. & Gomez, E., 2000. The Malaysian Development Dilemma, in Mushtaq H. Khan and K.S. Jomo, eds., Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia. Cambridge: Cambridge University Press.

Khan, M., 1995. State Failure in Weak States: A Critique of New Institutionalist Explanations, in John Harriss, Janet Hunter and Colin M. Lewis, eds., The New Institutional Economics and Third World Development. London: Routledge.

Khan, M., 2002. State failure in developing countries and strategies of institutional reform. Web.

Leftwich, A., 2001. States of Development: On the Primacy of Politics in Development, New York: Polity Press

Okuno-Fujiwara, M., 1997. Toward a Comparative Institutional Analysis of the Government-Business Relationship, in Masahiko Aoki, Hyung-Ki Kim and Masahiro Okuno-Fujiwara, eds., The Role of Government in East Asian Economic Development: Comparative Institutional Analysis. Oxford: Clarendon Press.

Rodrik, D. 1997. TFPG Controversies, Institutions and Economic Performance in East Asia. National Bureau of Economic Research Working Paper Working Paper 5914.

Rothstein, B. & Teorell, J., 2005. What is quality of government? A theory of impartial political institutions. Web.

Sean, O., 2000. States and markets in the era of globalization. Annual Review of Sociology. Web.

Seligson, M. & Passe-Smith, J., 2003. (eds.), Development and Underdevelopment: The Political Economy of Inequality. Boulder, CO: Lynne Reinner.

Selle, P. & Prakash, S., 2009. Theories of social capital, civil society and the state. Global Knowledge No. 12004. Web.

Sen, A., 2000. Development as Freedom. New York: Anchor Books.

Woo-Cumings, M., 1997. The Political Economy of Growth in East Asia: A Perspective on the State, Market, and Ideology, in Masahiko Aoki, Hyung-Ki Kim and Masahiro Okuno-Fujiwara, eds., The Role of Government in East Asian Economic Development: Comparative Institutional Analysis. Oxford: Clarendon Press.

World Bank., 2009. What is development? Web.

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