On the role of the private sectors and the developmental
state model
Costantinos Beruhtesfa
Costantinos, PhD
The UNECA has made the developmental state a model for African
development in its 2011 Economic Report. Needless to say, there are both
supporting for and counter arguments against UNECA’s submission. Mkandawire
asserts, indeed, the creed-edifice ideological nexus distinguishes a
developmental state. It’s essential ideological underpinning and source of its
political authenticity is ensuring high rates of accumulation and
industrialisation, where an élite coalition establishes an ideological ascendancy
around which key developmental institutions adhere to. Such characterisation of
the developmental state notwithstanding, it may fall into the trap of being
repetitious, redundant, reiterative and pleonastic; since evidence is often
drawn deductively from the performance of the economy that equates economic
success to state strength while measuring the latter by the presumed outcomes
of its policies. It has led to myopic focus of scrutiny around success to the
neglect of the trial and error nature of policy-making, even in the most
successful cases. If a developmental state is not be defined as an invincible
regime locally, then the definition must include situations in which exogenous
structural dynamic (such as the global economic crises) can torpedo genuine
commitments and efforts by the state.
The
developmental state model has a very long history. It started in Europe
particularly in Germany and France. In fact, even as late as 1968, France had
nationalized all financial institutions. Of course, the developmental states'
best model that we know is Japan, which undertook a very heavy and rapid development.
Later on came what we call the tiger economy of South Asia: South Korea, Taiwan
etc., which had also used the developmental state model.
Well, we
have a very wide literature on Japan and the others. What we should know very
clearly today is the assessment of the developmental state model was neither
developmental nor democratic. I think that is why our country is talking about
the democratic developmental state. In most of the tiger economies, it was
under military dictatorship that the developmental state developed itself very
well. Investors were happy to go and invest in these countries. They had cheap
labour. The labour law allowed them to recruit cheap labour and environmental
laws were non-e existent. As we hear today, China, which is one of the new
developmental state, is now plugged with pollution. Today, I was listening to a
radio that the Beijing pollution has gone 26 times more than what is allowed by
World Health Organization.
That was
the kind of attraction they had.
Nevertheless,
these developmental states had what we call an elite coalition. This elite
coalition consist of the state which is the purveyor of political goods; the
academia, which is doing in the thinking and the research; and of course the
private sector, which is the engine of developments. In developmental states,
government is responsible for developing the developmental research through the
academia to provide the resource for the private sector and regulating
industrialization. The second thing about the developmental state model is when
foreign investors come into the country they don’t only bring finance; they
also bring technology. They bring know-how, the kind of discipline that is
necessary for industrialization to happen. The tiger economies actually benefit
from it, and a case in point is China. Much of American products we see are made
in China. They are only produced in China because of cheap labours and lax
environmental and tax laws they have. Otherwise, every research design putting
to it is undertaken in the G7 economies. Even then, as little as $10 of the value of every iPhone or iPad actually ends up
in the Chinese economy.
When we
talk about the developmental state model, it is very difficult to find good
example in the mainstream that we could say the good practice in terms of
having a democratic state model. Every state is developmental in a sense that
it has to make laws, provide the necessary foundation for the private sector to
be able to lead development, create employment and opportunity for further
research and development.
In the case
of Ethiopia, we can achieve development. I do not think that is a problem.
However, the fact that the government holds on to the main instruments of
production and communication and finance means that our participation in the
international arena becomes very low. I will give you an example. With the
participation of the international financial institutions in Ethiopia, the big
banks come here and start operating. They will bring capital to be able to
provide the private sector with the necessary engine for growth.
When we
talk about the private sector, we are not talking about the Ethiopian private
sector. There is always an undercurrent that Ethiopian private sector is
underdeveloped. Under the global economy, we do not have such a situation where
a certain private sector becomes responsible for a certain country’s national
development. The private sector is now a super-state institution within which
companies like IBM and Microsoft and the big banking institutions are in almost
every country in the world. They are not accountable to any regime or any
single government and therefore when we talk about the private sector and its
ability to invest in industrial development, which means we are talking about
the global private sector.
Therefore,
we should have conditions beyond tax holidays and duty holidays. We should have
the enabling environment for this private sector to be able to function in our
country. Such a private sector will need finance. Such a private sector will
need a kind of latest technology for development and consumer based activity.
It is consumer based because we are almost ninety million people now in
Ethiopia. The problem of Foreign Direct Investors coming here is that the
industries need good international finance. The availability of international
banks with some amount of resources would enable the international private
sector to have the resources to develop our agriculture.
Frankly
much of our country now is covered with what we call the Protection of Basic
Services and Productive Safety Nets and micro-finance. If we had had strong
financial institutions in this country, they would have been able to provide
the private sector with sufficient finance and resources to be able to employ
much of the peasantry we have in Ethiopia. The process of development has been
globally on move from rural to urbanization, from farming to productive
industry. I believe this is the road we need to travel. Even in communist
countries under Lenin and Stalin, the idea of what we call changing the farmers
into a proletariat class (workers) was the basic concept of development. The
role of the state in all this is to create strong regulatory institutions
especially in finance industry, in manufacturing and in education. The other
challenge we have in this model is the education system is dominated by the
government. Especially, while primary education is free and allowed to every
citizen, but the quality of education we have at higher education institution
does not present opportunities for us to be able to get the necessary skills
that the industry wants in our country. I will give you an example. We have
more than two million Ethiopians who are selling their skills to the European
and American economies; but we do not have that number who can do the same to
our economy.
The other
problem of course is the level of meritocracy in governments. The merits and
qualification of people employed by government need to be assessed very
carefully because they are the ones leading developments especially at the
local level. Therefore, the government, if it wants to implement ‘development’ programmes
by itself, it has to be able to pay competitive remuneration. You can see for
example how medical doctors as soon as they graduate leave the country. A
country like Botswana has the majority of their medical staffs Ethiopians. So
how do we stop this brain drain from our country and ensure that these people
live within Ethiopia? I have been on record saying that the role of the
state in achieving rapid and sustained economic growth and development combined
with deep structural transformation must be channelled through a disciplined
planning approach… such a role is best performed by states operationalising
transformative institutions that are both developmental and democratic.
Nevertheless, awkward comparisons of African entrepreneurs against
Western capitalists and the fear of state capture by corrupt ‘traders’ have led
to a naïve realism of public power and private interests, a view that pre-empts
or precludes the possibility of building elite developmental coalitions. If
market entrepreneurship is to be practicable, it must be augured on the
aptitude, faculty and competence of an entrepreneurial genre. The state, as a
regulatory organ, has to direct state policy toward nurturing indigenous
capitalist accumulation by facilitating institutions of stabilising
capital-labour relations and supplying technical services and physical
infrastructure. Social entrepreneurs on the other hand must convince the nation
that capital accumulation is in the national interest, while acquiring the
capacity for thriftiness and investment and organisational capacity to not only
manage one’s enterprise, but also impose self-discipline.
A process of continuous educational and technological innovation,
industrial upgrading and diversification and improvements in the various types
of infrastructure and institutional arrangements constitute the context for
business development and wealth. As witnessed in the experience of all
countries that have successfully transformed from agrarian economies to modern
advanced economies, however, market mechanisms may not be sufficient and the
government has a potential role to play in helping such entrepreneurial
ventures. Think tank driven knowledge and innovation, human capital
institutions, infrastructure and policies, including fiscal, monetary, exchange
rate, capital flows and trade policies, are important for success. Critical
human skills are of essence in the establishment and development of capital
markets. The quantum of skills in the state is key to the positive role of
government aligning financial intermediaries that convert savers to investors,
the principal clientele of markets.
Advocating a stronger role for the state in development should neither
be seen in terms of the old and tired debate of state versus the market. Nor
should it be understood that the private sector should not remain the only
engine of growth. The issue is not whether the state, like the market, should
play a role in economic transformation but rather how to strengthen their
capacity and accountability to design and implement more effective policies and
strategies. Events of many emerging economies’ success stories provide valuable
lessons that may not simply be transplanted… Ethiopia must nurture think tanks.
In the interminable faculty of think tanks to innovate and an unquenchable
desire to reinvent, developed nations reap the developmental booty of an
exceedingly proactive and skilled entrepreneurial leadership.
Like Ghana and Brazil, state planning and policy-making must be based on
on-going dialogue; a coherent and coordinated approach between different
government agencies in their dealings with the business community; flexibility
in response to global phenomena and emphasis on achieving high levels of
performance. Beyond GDP growth, performance anatomy is perhaps the most elusive
characteristic of all great economies. Nonetheless, interaction between
leadership and strategy, technology and human capital development, meritocracy,
performance measurement and innovation, are critical to defining a
high-performance market economy that lifts nations out of penury.
While Ethiopia’s
economy has been growing rapidly, so far the role of the private sector as we
see from the assessments made by the International Monetary Fund and the World
Bank has been one of the lowest in the world. Therefore, private sector
investment is the only empirical proof that our country can develop
economically. Moreover, that economic development should lead us to sustainable
democracy. I think when we talk about the developmental state model we have to
define very clearly, what the roles of the private sector and that of the
academia are.
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