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Do you agree that bringing the state back in adequately describes the most important
change which has occurred since the mid-1990s in official development thinking?

Development as an idea and as a process, in one form or the other, has existed
throughout human history but the development studies and practices got boost in 20 th
century as a response to the negative aspects of economic growth. The great Depression
and World War II internationalised the idea of development through International
Development Institutions that promoted the idea of intentional development. Despite
competing political-ideological interpretations of Development, there had been a
consensus that state power could be exercised to bring development. From the rubbles
of Great Depression and WW-II rose an all powerful state not only providing
infrastructure and utilities but also supporting health, education etc. As illustrated by
WDR (97, p. 22) Between 1960 and 1995, governments in the industrialised countries
swelled to twice from their starting point. Likewise, many newly freed countries in
Asia, Middle East and Africa followed state dominated economic development in lieu
of the international trend. Oil crisis of 1970s, collapse of USSR, rising number of failed
states in Africa and Asia, and increasing debts swung the pendulum to minimalist state
of 1980s. Stateless development brought disastrous outcomes like bad governance,
neglect of states vital functions, threatening social welfare and eroding the foundations
of market development (WDR 97. p. 24). How state can be reformed, so that it plays an
effective role in economic and social development, dominates the development studies
since 1990s.

In this essay the reasons for increased focus on states role and good governance in
bringing development, and components of an effective state (good governance) will be
discussed. It will be argued that the foundations of economic and social development
rest heavily on the governance capability of a state. Good governance, in form of rule of
law, participation, fairness and transparency, delivers economic and social
developmental outcomes.

Governance, for the purpose of this essay is defined as a process of interaction between
formal institutions of state, i.e. executive, legislature, judiciary and police, and society
(UNCTAD 2009, p16). Governance includes the structure of the institutions, their
policy making process and their implementation. While development governance, as
defined by UNCTAD (2009, p. 15) is about creating a better future for members of a

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society by using the authority of the state to promote economic and social
development. Effective state is defined as one whose role matches to its capabilities
and has capacity to facilitate the economic and social development in partnership with
market (WDR 97). Lastly, the institutions are defined as rules of game in a society or,
more formally, the humanly devised constraints that shape human interaction (North
1990, p. 3).

The reasons for the policy shift from state dominated and stateless development to
effective state partnership lie in the failure of states to find a middle way between state
dominated and market oriented development paradigms, ignoring the essential but
effective role of state in providing basic public goods. For example, the collapse of
state planned development in former USSR and Eastern Europe led to another extreme-
embracing market mechanism almost unconditionally (Thirlwall 2006, p. 289). It
resulted into eroding writ of state and some states even failed to collect revenues as they
had compromised their basic roles to markets. Some important programmes in
education and health were squeezed to meet the interest obligations. As a result, state
lost its effectiveness and credibility.

The success of South East Asian development model also inspired the development
thinking all over the world in mid 1990s. State had played an effective role in the
development of Japan and Asian Tigers. Their success brought the concept of
developmental state as argued by Chalmers Johnson (1982 & 1994), emphasising the
role of bureaucracy of a particular type and effectiveness of one party rule as against the
neoliberal doctrines taking roots in Europe and US with Thatcher and Regan assuming
the power. This success inspired the World Bank (WB) to publish its World
Development Report (WDR) 97 titled The state in a changing world that was followed
by Reforming Public Institutions and Governance: A World Bank Strategy (2000). Both
reports laid down the relationship of governance and development, and strategy to
reform the public sector and governance for bringing the development.

Despite pouring trillions USD of international aid in Africa and Asia, frequently
emerging fragile states also gave impetus to this policy shift and it was described as
crisis of governance. States failed even to provide basic public goods like law and
order, roads, property rights, education and health. Plagued by the lack of basic
infrastructure, impoverishment, ethnic strife and ineffective governments, these Bottom

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Billion recourse to guns and, by 1991, seventeen wars and thirty-five minor conflicts in
various parts of the World were running at the same time (Collier 2009, p.4). It was
realised by the World that the massive international aid has not dealt with the crisis of
governance in fragile states and there is a need to restructure the state in many parts of
the World.

Finally, the mounting cost of welfare states in developed countries and huge public
deficits in developing countries also necessitated a shift in development thinking. It was
argued that welfare state has been over expanded, has reduced GDP and economic
growth, efficiency and has distorted resource allocation in those countries. By 1990s it
was fair to say that most industrialised country governments spent more time moving
money around the economy in form of transfers and subsidies than they spent providing
traditional public goods (WDR 97, p. 22). While the developing countries based their
nation-building by getting involved in every aspect of economy, administering prices
and increasingly regulating labour, foreign exchange, and financial markets (WDR 97,
p.23). As a result of this uncoordinated spending and borrowing and recycling of petro
dollars, developing countries of Middle East and Asia suddenly plunged in debts while
the situation in Industrialised countries was no different. Declining living standards in
developed countries and increasing poverty in LDCs once again brought back the voice
for incremental improvements in governance.

National and international development policy makers, in the wake of developments of

1990s, started rethinking the role of states partnership with markets in bringing
economic and social development rather than depending exclusively on the one
element. As the different states were on the different level of development so three
kinds of strategies were drawn; first focussing on basic functions like providing pure
public goods; second managing externalities, provision of social security etc in
partnership with markets and; third more activist functions like coordinating and
facilitating different markets and service providers to promote development. This new
outlook of state was based on the effective governance to undertake the type of task that
matches states resources and capacity, gradually moving forward to more demanding
role, as indicated in the reform strategy of WDR 97.

However, the above mentioned role of state and its gradual progress is based on certain
fundamentals of good governance on which a state erects its effectiveness. These

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fundamentals are rule of law, nondiscretionary policies, and investment in basic social
services, protecting the most vulnerable and protecting the environment (WDR 97, p.
3). How effectively a state is able to achieve and maintain these fundamentals
determines the credibility of that state in national and international arena and without
them, sustainable development is impossible. Therefore a state without getting the
fundamentals right is less likely to promote development through its activities or by
facilitating the markets.

Two major events of 21st Century, 9/11 and Global financial crisis, added urgency to a
reconsideration of the potential for the new role and functions for the state (UNCTAD
2009, p. 25). It was particularly relevant to developing and Least Developed States
where the crisis of governance had reached to an alarming proportion. It was argued that
neither New Public Management initiative nor traditional developmental state model is
appropriate in the given times. It rather introduced the idea of New Developmental
State and Development Governance (UNCTAD 2009). The components of
development governance were derived from the success of some developmental states
from 1960s to 1990s and their adaption to the 21st century circumstances. Development
governance model emphasised role of knowledge in development, diversification of
economic activity, increasing the developmental role of foreign investment, adopting
regional developmental approach, building democratic developmental states, and new
thinking about modern governance approaches that focus on new form of interaction
between Government and society and between the public and private
sectors(UNCTAD 2009, p. 35).

Effective state model (1990s) and new developmental state model (2009) established a
strong linkage between good governance and development. Absence of good
governance and delay in reforms has resulted into postponed growth and social
development and even bigger costs like civil unrest and disintegration of the state. As
put forth by WDR (97, p.15) Vicious cycle of poverty and underdevelopment set in
train by the chronic ineffectiveness of state can all too easily lead to social violence,
crime, corruption and instability. So, the fundamental task of the state was to set a
social order before embarking on any further expedition.

Establishing a foundation of law is the core task for achieving the development
governance on which the social, fiscal, monetary policies and functioning of free

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markets and effectiveness of development policy depend. Without rule of law, a state is
neither able to collect taxes nor utilise public resources in the best interest of its people.
It deters private investment, shrinks local economy and promotes corrupt institutions.
As Fukuyama (2004, p. 2) argues From the standpoint of economic development it is
best to have a state relatively modest in scope but strong in ability to carry out basic
state functions such as the maintenance of law and order and the protection of property.

Rule or foundation of law sets a social order that provides base for development. By
framing rule and restraints, establishing free and fair institutional treatment to private
investment, protection of business activity, containing arbitrary conduct of officials,
ensuring independent and credible judiciary, and providing timely information to
public, states establishes it writ and credibility. States with weaker capability to enforce
rule of law, stand at the verge of social unrest, illegitimate coups, economic
impoverishment, market failures and failed development. It is rightly stated by Collier
(2009, p. 9) wars and coups are not tea parties: they are development in reverse.

Participation of the affected stakeholders in policy making process is an important

component of development governance. It helps to create common national
development goals. Although the role of democracy in brining development has
seriously been questioned in modern times (Randall 2007 & Collier 2009), yet
participation is critical for building consensus around a development project. It gives
birth to democratic developmental state that, as argued by Edigheji (2005, p. 5), not
only embodies the principles of electoral democracy but also ensures citizens
participation in the development and governance process. Development scholars find a
strong link between national cohesion and development, as ideological adherence to
national development goals played a key role in the success of Asian Tigers.

Greater participation of stake holders in governance process promotes transparency and

fairness in resource allocation and resolution of conflicts among potential losers and
winners in a development policy. It ensures that the benefits of development are
equitably distributed. It builds accountability as a formal mechanism of constraint and
divides the power between legislature, judiciary and executive. While on institutional
level it tends to reduce opportunities for corruption. In Hong Kong an independent
commission on corruption is one of such successful example that reduced corruption
through addressing horizontal and vertical causes of corruption (WDR 97, p. 9). It

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resulted into more competitive processes for the private business and reduced political
patronage of the public officials.

Good governance is the back bone of sustainable economic development. Good

governance policies, according to IMF report (1997,p. 3), like transparency of
government accounts, the effectiveness of public resource management, and the
stability and transparency of the economic and regulatory environment for the private
sector activity are closely associated with macroeconomic stability of a country.
Moreover the cross examination of countries who performed well in last two decades
and those who did not, leads to the conclusion that good governance accelerates capital
accumulation and transfer assets and resources to more productive sectors, accelerates
technological learning, maintains political stability in context of social transformation
(UNCTAD 2009, p. 25). Such governance helps transformation of socio-economically
marginalised states in to a development state (Khan 2008, p. 28).

However, economic growth is not an end in itself. As put forth by HDR (1990) people
cannot be reduced to single dimension as economic creature. No doubt economic
growth is essential for meeting human needs but how that growth translates into human
development is the subject of development governance. WDR 2003 supported the idea
that ensuring sustainable development requires attention not only to economic growth
but also to environment and social issues. This shift of focus was also visible in MDGs
that shifted the agenda from economic growth to human development and from
efficiency to equity. Thus, it is necessary to look beyond the economic development if a
state wants to achieve human development.

Development governance improves the living standards of its population by expanding

employment opportunities and labour productivity. The success of East Asian
economies was their production oriented policies but such policies encouraged
structural transformations. Shifting from agriculture to industry, theses economies
improved the skills and technology base of its labour and industry. It led to more
employment and productivity and addressed the issue of unemployment and economic
growth simultaneously. Development governance not only focuses on great and
efficient production but on distributional issues as well to ensure that the fruits of
development are socially owned and shared.

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The historical and contemporary analysis of states role transformation offered in this
essay, therefore indicates that the state power is essential to bring the development in
the wake of state and market failures all over the world. However, only an effective
state can play developmental role. An effective state rests on the effectiveness of its
governance capability. The governance for development through its foundation of law,
participation and, fairness and transparency promote sustainable economic and social
outcomes. Through rule of law, a state establishes a social order and even playing
ground for all participants while encouraging the people on margin of development and
policy making to join the core. Fairness and equity in its transactions enhances its
credibility and people own its policies and outcomes. Fair rules and participation lead to
efficient outcomes of business activity because it minimises political patronage and
leakages from the system. It also translates economic development into social
transformation by correcting the wrongs of economic growth. Therefore, modern state
should first focus on its governance if it wants to bring development either in
partnership with markets or international community.

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References

Atkinson, B. A 1999, The Economic consequence of rolling back the welfare state, MIT
Press, Cambridge.

Collier, P 2009, Wars, guns and votes, Harper Collins Publishers, New York.

Dolowitz, P. D 2004, Bring back the states: correcting for the omissions of
globalisation, in Levi-Faur & Vigoda-Gadot (ed.), International Public Policy and
Management, Marcel Dekker, New York.

Edigheji, O 2005, A democratic developmental state in Africa, research report no. 105,
Centre for Policy Studies, Johannesburg.

Fukuyama, F 2004, Bring back the state, The Observer, 4July, p.44.

International Monetary Fund, 1997, Good governance: the IMFs role, viewed May 20,
2010, <http://www.imf.org/external/pubs/ft/exrp/govern/govern.pdf>

Johnson, C 1982, MITI and Japanese miracle, Stanford University Press, California.

Johnson, C 1994, Japan: who governs?-The rise of developmental state, W.W. Norton
& Company, New York.

Khan, M 2006, Governance, economic growth and development since the 1960s, DESA
working paper no. 54, United Nations Department for Economic and Social Affairs,
New York.

North, C. D 1981, Structure and change in economic history, W. W. Norton and

Company, New York.

Thirlwall, P. A 2006, Growth and Development, Palgrave Macmillan, New York.

United Nations Conference on Trade and Development, 2009, The least developed
countries report: the state and development governance, United Nations Publications,
New York.

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World Bank, 1997, World development report: the state in a changing world, Oxford
University Press, New York.