A call for a ‘developmental state’ view of economic policy

Truth speaks for itself. Kevin Danaher in his famous edited book, “50 years is enough” referred to fable that a villager who goes to a local wise man and asks to borrow the wise man’s donkey. The wise man lies, saying the donkey is not there. Just then, the donkey brays. The wise man pauses, then says: “Well, who are you going to believe, a donkey or a wise man?” After the downfall of Soviet bloc it was assumed that the days of class struggle is over. But in the perception of Marx and Engel, all history of humankind is history of class struggle. From pre-capitalist’s accumulation of capital to mercantile capital, to finance and onward market economy neo-liberalism, and capitalism has actually effected the formation of classes, whether it is in the form of separating people from their means of livelihood or whether transforming social capital as private property; it is seen as self-reliant entity governed by its own laws which doubtlessly believes that there is no human needs or limits but the capital.

The developing world after undertaking hasty trade liberalization are facing social exclusion, economic inequality, unemployment and declining skilled labours. Probably just remaining a magnet of criticism is not the criterion of effectiveness. The fact remains that after more than 20 years of neo-liberal free market and free trade strategies, result of these measures showed in different studies of International Financial Institutions that there has been a lack of development impetus in the poor countries. Anver Versi, quoting a (Norwegian economist) Erik Reinert states that “no nation has ever taken the step from being poor to being wealthy by exporting raw materials in the absence of a domestic manufacturing sector”. Actually, developed countries can protect their people by shielding their basic industries and subsidizing the essential basics such as food, shelter and health etc. While developing countries are forced to transform to the market economy they are loosing economic strength.

Way back, some twenty years ago, there was conceivably some excuse for holding the belief that a “free market economy” and non-intervention approach of the state can give a better economic order for debt ridden society than a centrally planned economy. It was conceived that no nation can survive, prosper, and be safe on its own without the economic cooperation of others under the garb of global governance institutions of IFIs. No state can pledge its citizen prosperity, growth, employment, competitive human capital and no country can manage clean environment, its tax systems, its markets, its companies and even the fast food without the liberalization of its boarders for regional and global trade. These strategies had their own control and discipline imposed through the international institutions. Now after more than twenty years when we weigh our experience this lead us to the conclusion of these doctrines as catastrophic as much as any imperialism  The notions of such forces have exploded and turn into “chaotic concept” amid lacking institutional support to cope with it.

While taking a political economy view of liberalization policy, number of questions arises when a country is asked to adjust to the policies of neo-liberal programs and the way these IFIs want a country to implement it regardless of their ground realities. The question is – what will be the effect of liberalization and deregulation on an economy which still is not ready for perfect market, where still the institutional arrangements between government and private sector for assurance of property rights are immature. Moreover, what is the mechanism of equal distribution of wealth and resources if the purpose is to address the concerns of the poor? And what happens when the issues of privatization and sequence of reforms comes as a “bail out”  step when there is not a broad capital base for the reforms implementation as these countries have relatively small stock markets, trading companies and major companies are state-owned. When these are privatized, ownership by private sector still stays narrow & hardly there is a chance for new ownership and competition keeping in view the limited capital base. This happened in Russia in 1990s and in some of the East Asian economies as well as in Pakistan where capital base was small.

So the result after 20 years of these reform and claim of IFIs for providing a level playing field for fair competition is self explanatory. Actually the movement toward the neo-liberal utopia of a perfect market is conceived through the sequences of reforms for financial deregulation. It is achieved through the transformative measures to protect foreign investors and put into question to that entire structural base which could prove an obstacle to the process of this deregulation for market. The state power of intervention constantly decreases and power overcomes by the consumption through the pattern of markets. And who are the protectors of such a system is the monopolized private companies, stakeholders, big industrialist and those as term by Marx comprador bourgeoisie  who give assurance of laisser-faire.

Pakistan, since 1980s, has been implementing the neo-liberal economic model of non-interventionist policy, and was seen as panacea for its economic problems and later heavy debt gave sufficient justification to IFIs for persuasion of these policies by restricting the government role in the market.

The Neo-liberalism as apposed to developmentalism tends to favour the system conforming to the agents who constraints economic regulation and legitimates the ‘free trade faith’. For them power of market resides in the name of ‘economic efficiency’ which need removal of barrier of public sector institutions that can hinder their maximization of profits. Here also lies the prudence of market economy and justification of economic affluence society but subordination of national governments to the masters of such economic paradigm.

The World Development Movement quoting a report, states that “the World Bank’s and particularly the IMF’s policies have actively contributed to deepening poverty in the developing World rather than alleviating it. Those countries that have developed most successfully have often been those that have ignored the Bank and the Fund and pursued their own path to development,” the report asserts. In order to meet basic development targets of MDGs there are more than 100 countries which demand immediate debt cancellation. That might have very insignificant impact of this cancellation on the North, but for the poor south, this will give them another life.  These countries which do not have even basic need of life are paying back debt and servicing. Looking at this fact it appears that the original mandate of this institution of development is transformed into creating more debtors.

As we get example of  East Asian Economies as recipe of catching up but we have to take it with caution that it was done not with just “free market”  but was supported by stable rule, strong state institutions to limit interest group that could prevent economic growth, public private partnership with centrally controlled policy,  with maintenance of  egalitarian policy of resource distribution  and the important was the mechanism of state intervention based upon market incentives to have public private partnerships. Therefore, neither the state hierarchy nor the “free market competition” are the strategies to address the poverty and economic growth issues.

Scholarly work focus on developmental agenda reflects that trade liberalization will have only a modestly positive impact on poor people. It may help just 16.3 per cent of the poor world-wide, while this improvement may literally be insignificant. Free market strategies mostly result in significant social costs for poor. It pushes for lowering tariff, major source of revenues for the governments and ultimately constraints on social spending as a result bring more people below the poverty line and losing their livelihood. Developing countries have to face more stringent condition for trade liberalization measures than developed countries, as developed countries do not have to borrow from the World Bank/ IMF, they are not bound by the policies imposed by IFIs for free trade. Consequently, they make sweeping reforms prior to any new round of WTO negotiations, therefore, they are not able to bargain it in the WTO negotiations as they are already underway, this creates a  lock-in position which  puts developing countries again at disadvantage.

This is odd. We need paradigm shift which seems to be hesitant at prevailing economic discourse of laissez-faire dogma, though IMF and WB has already realized that focus on poverty reduction,  education and health will bring them the closer to the achieve result of MDGs, for that reason they have given a special attention in poverty reduction strategies. We can benefit of this rethinking process and establish reciprocated mature intuitions in Pakistan and start a process to implement the model of ‘developmental state’. We are faced here with an extraordinary paradox. On the one side we want to integrate ourselves with the economic globalization and for that we need to implement most importantly IFI’s conditions and on the other we are becoming just a facilitator for multinational companies and investors and having no room for fair play in market.

‘Free market economy’ does not provide a viable option for development, and when all argument are in favour that such strategies have failed to bring egalitarian prosperity then we are clearly confronted with two question: should we leave things to market and sit back to hope that it will bring change?  Is this only option we are having with no alternatives or otherwise, state control is only the option? Probably “developmental state” is the answer. A corpse of economic deliberation that advocates state managed markets in the national interest.  Can we learn something from East Asian Economies – government coordinated private sector with a clear vision of their role in economic prospect would reflect developmentalism? No one has clear idea what exactly should be the mechanism to reduce poverty as such, all hopes rests in developmental state

Source: The News, 25/8/2008

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