Managing Developmental States:

Policy and Institutional Reforms in Africa

An Ethiopian case

BT Costantinos, PhDSchool of Graduate Studies, Department of Public Management and Policy, College of Management,

Information and Economic Sciences, Addis Ababa University

National Conference on Management for Effectiveness,

Efficiency and Ethics  

Ethiopian Management InstituteJune 30-July 1, 2011

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• Introduction• Research questions• The Developmental State:

– Definition: tautology, redundancy or pleonasm – Ideological forces behind developmentalist dirigisme

• Rise and fall of developmental states:– The Japanese Miracle and the East Asian Tigers

• African Developmental States:– Analytical disconnects , good practices - wrong lessons,

government and market failure, neo-patrimonialism and rent seeking

• A Global Order emerging:– Self-fulfilling predicaments, rolling back the state

• New public management– NPM, The Washington Consensus, The New Structural

Economics, Trade and Investment Policy Priorities• Can Ethiopia nurture a developmental state • Conclusion and recommendations

Contents

PART IAfrica’s

Experiments,Prescriptions and

Global Good Practices

• How can a developmental state emerge? What are its characteristics and functions?

• Is the model recommended for all African countries?

• Did the concept evolve into solid development theory so far?

• Who determines public interests? How are they articulated and aggregated?

• How do we ensure it can effectively guide economic transformation and development?

• How can we ensure that it is accountable and that it acts in the interest of its citizens?

Research Questions

• Nationalism, catch up with other developed nations

• The centrality of ideology: naïveté of the de-politicised quest for technocratic governance,

• French dirigisme:– Commissariat général du plan– development of meritocratic technocracy: the

École Nationale d'Administration , École Polytechnique

• The Japanese and East Asian Miracle– The claim of developmental states as a success

is contentious, but supported by the historical record.

– East Asian Tigers’ place as a bulwark against communist expansion in East Asia meant that they received favourable treatment from the US

– depicted as centres of self-serving ‘crony capitalism’

Ideological forces: Developmentalist Dirigisme

• Nationalism, catch up with other developed nations

• The centrality of ideology: naïveté of the de-politicised quest for technocratic governance,

• French dirigisme:– Commissariat général du plan– development of meritocratic technocracy: the

École Nationale d'Administration , École Polytechnique

• The Japanese and East Asian Miracle– The claim of DSs as a success is contentious,

but supported by the historical record.– East Asian Tigers’ place as a bulwark against

communist expansion meant that it received especially favourable treatment from the US

– depicted as centres of self-serving ‘crony capitalism’.

Ideological forces: Developmentalist dirigisme

• One remarkable feature of the discourse on the state and development in Africa is the disjuncture between an analytical tradition that insists on the impossibility of DSs in Africa and a prescriptive literature that presupposes their existence

• The African state is today the most demonised social institution, vilified for its weaknesses, its over-extension, its interference with the smooth functioning of the markets, its repressive character, its dependence on foreign powers, its simultaneous ubiquity & its absence, etc.

• The state, once the cornerstone of development, is now the millstone around otherwise efficient markets.

• Early criticism of the state in Africa came from the neo-Marxists – Petty bourgeois state, the neo-colonial state and the dependent

state. – the state become dysfunctional in terms of the larger societal

issues, but also a real nuisance in la vie quotidienne of its citizens, as evidenced by the withdrawal from state-dominated economic and social spaces

Problem Statement

• 1960–1972, 26 countries had growth in excess of 2%, 13 countries achieved 3.5%. 16 countries had <2 %. 10 countries negative growth

• During 1973–2000, economic growth faltered. 13 countries saw growth in excess of 2%. Negative growth almost doubled to 18 nations. 22 countries recorded growth rates of less than 2%, and 16 less than 1 %.

• 2000–2007, 25 countries grew in excess of 2%, 14 countries recorded negative growth rates; 14 countries recorded positive growth rates of less than 2 %, and six of them less than 1 %

• 1960–2007, 16 African countries had growth rates in excess of 2 %; 11 countries recorded negative growth rates; and 26 countries recorded positive growth rates of less than 2 %, and 12 of them less than 1%

• Among the major features of the African growth processes, especially those of sub-Saharan Africa, is their relatively high volatility

Africa’s track record

YearGrowth rate

negative <2 % ≥ 2%

1960 - 1972 10 16 period 26 [13 more than 3.5%]

1973 - 2000 18 22 [16 less than 1%] 13

2000 - 2007 14 14 [6 less than 1%] 25

1960 - 2007 11 26 [12 less than 1%] 16

• AU commitment to strengthening governance for development through many instruments

• Policy orientation is situated within a wider commitment to sustainable development, rooted in democratic governance: fundamental to development.

Democracy, governance and development

• Planning development processes: “encouraging signs”– Development frameworks: developing countries

need development “frameworks” rather than narrow “models”:

– Development strategies• “Comprehensive Development Framework”; • “framework for rethinking development” or • “new structural economic framework” interdependence

of social, structural, human, governance, environmental, economic and financial…

• 1999 WB and IMF :Poverty Reduction Strategy Papers

• Specific, measurable and inclusive strategies: “shared growth in Africa”

– Development plans:• UN Millennium Summit: MDGs on global partnership for

development. • Each goal has quantitative indicators to gauge progress.• NEPAD is another of such kind

The Africa experiment – so far

Africa’s Efforts … Problem Statement

• In reality, state-led development model often failed to construct DSs

Why? the rise of dictatorships lacking strategic

partnership with the indigenous private and business sector;

The state played multiple roles as investor, banker, trader and primary employer, rather than carefully nurturing a local entrepreneurial class;

Low savings and investment rates, flawed industrialization strategies, poor performance of the agricultural sector, low investment in research and technology;

Extreme dependence and consequent shocks,

Asian comparative performance…• Reasons behind the Asian economic “miracle”• Large investments in physical and human

capital, • A market friendly environment and

appropriate macroeconomic policy frameworks• Strong institutions: efficient resource

allocation and infrastructure, and an efficient school system

• profitable investments: credit/ interest rate policy

• State policy interventions: subsidized credits, public investments in research and technology, and development of export-marketing institutions.

• Surrogate ‘workshops’ for corporate America and Europe

• Has been compared to African countries in terms of initial conditions and growth performance– In 1960, it had a real per capita income of $2,195 in 2005 PPP

dollars; by 2007, its real per capita income had reached $17,891, an average annual rate of increase over the period of 4.6 %, characterized by very low volatility (coefficient of variation of 0.8)

– Structural transformation of a predominant agricultural economy to a more industrialized economy, and then a knowledge-based economy

• Lesson to be drawn: – Successful economic transformation was achieved by

deliberate state involvement, based as it was on a disciplined planning process

– Involvement included formulation of relevant development policies, creation of institutions and provision of investment

– It involved three successive “outline perspective plans” drafted under an overall “2020 Vision”.

The case of Malaysia:

PART TWO

Governing Development in Ethiopia: Needs and Responses

1. A DS is defined as “a state that puts development as the top priority and is able to design effective instruments to promote such a goal”.

2. The instruments should include – forging of new formal institutions,– the weaving of formal and informal networks of

collaboration amongst citizens and officials and – the utilization of new opportunities for trade and profitable

production”

3. A DS is thus understood as: – an interventionist state, which can identify priorities,

set targets, develop strategies, coordination among various sectors and stakeholders, and establish systems for achieving short & long-term goals.

– A DS can establish clear economic and social objectives, and influence the direction and pace of development.

The Developmental State

Concepts and Features of DSs…1. Ideology “ Software” and agency

“Hardware” : – a developmentalist ideology; – the requisite institutions, norms and standards

and meritocratic civil service 2. Vision setting, leadership, capacity and ideology

– Leadership can articulate DS ideology and vision– Building an elite coalition for support– Building technical capacity and popular support– Strong sense of nationalism and commitment

3. It is about building constituency and halting a rent seeking epidemic

4. Relative state autonomy in formulating and implementing policy

5. National Development Planning

Governing development Governing development focuses on three axes:1) Urgent need for economic diversification &

structural transformation,2) The state in structural transformation, 3) How the construction of DS might enhance and

speed up the economic transformation process.

Structural transformation can be seen as:

• Change in sectoral composition of output (or GDP) • The sectoral pattern of labour employment • Sustained increase in real per capita incomes • Transforming agrarian to industrial economies remains

a major development challenge. • Key lessons from the recent global crisis is to diversify

the economy that can create jobs and wealth and enable countries to withstand external shocks

• Characterization: An effective DS should have the following characteristics: – Political will and capacity to articulate and

implement policies • to expand human capabilities, • enhance equity and • promote economic and social transformation.

– It should have the political will and mandate ,– Policies must be derived from a consultative process

not manipulated by technocratic/ socio-political elite,– existence of competent and neutral bureaucracy,– Establish complementarities among social and

economic policies, governance system that ensure focus, context, contents and implementation modalities

Constructing DS in Ethiopia:

1. Unchecked intervention, which is beyond the level needed to correct market failure that risks efficient resource allocation,

2. The entire state apparatus may be captured by elites or powerful special interest groups so that the course no longer reflects those goals derived from democratically organized public deliberations.

3. At a lower level, weak integrity and professionalism may lead to rent seeking, breeding waste and inefficiency.

4. Inappropriate behavior of regulatory agencies: corrupt regulators may be caught by those which are meant to be regulated,

5. Both public and private producers may also find it more profitable to invest resources in rent seeking rather than actual production,

6. Similarly, consumers who receive subsidies may also resell their allocations for gain T

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1) Enhancing the state’s role in transformation: The role of the state in achieving rapid and sustained economic growth and development combined with deep structural transformation must be channeled through a disciplined planning approach…

2) Building African DSs: The above role is best performed by states that are both developmental and democratic:– A good constitution, the rule of law, independent

judiciary, representative political institutions, effective regulatory institutions and property rights enforcement,

– A competent and professional bureaucracy whose recruitment and advancement are based strictly on merit,

– An agency charged with the responsibility of overall development planning and implementation

– A developmentalist coalition among committed political leadership, the bureaucracy, private sector and civil society .

Policy Recommendations

3)Ensuring the effectiveness of African DSs

4)Avoiding the pitfalls of state intervention: carrot and stick approach to rent distribution

5)Enhancing stakeholder participation– Establish democratic deliberative institutions.– Empower these institutions to promote

stakeholder ownership of development, enhanced citizen oversight over government activities...

–Use the market to motivating economic agents,

Policy Recommendations

– Establish and empower regulatory agencies to set and enforce product quality standards for all producers,

– Establish competition policy and enforce competition law against anti-competitive behavior by public and private producers.

– Empower the bureaucracy to transparently determine the extent and allocation of rents, and the terms and conditions for their allocation and elimination,

– Ensure that the bureaucracy has both the autonomy and capacity to respond quickly to changing local and global situations

– Forge close, interactive and synergic relations between the bureaucracy and the private sector

Policy Recommendations

Mainstreaming Policy , Strategy, Structure and

Process in Developmental States

Situation Analysis

The elite Coalition

Policy & Institutional arrangements

National and regional operational Plans

Divestiture of state enterprises and decentralised management of businesses and public works

Sustained Implementation

of Activities

Monitoring, Strategic Information Management

Response Analysis

Evaluation

Entry points: national and regional frameworks, advocacy, partnership and

internal and external domains

Acknowledgements: The 2011 PhD candidates, Dept. of Public Management and Policy , AAU and

The John Hopkins University MARCH Research Team

1. Abeba Beyene PhD GSR/6318/03;2. Alazar Amare, PhD GSR; 6313/033. Ayenachew Aseffa PhD GSR/6319/03;4. Berhanu Temesgen PhD GSR/6316/03;5. Bikila Hurissa PhD GSR/6314/03;6. Girmaw Assemie PhD GSR/6320/03;7. Nega Wubie PhD GSR/6312/03; 8. Sewagegne Delele PhD GSR/6321/03;9. Tamrat Getachew PhD GSR/6317/03;10. Yetnayet Ayele PhD GSR/6315/03

Thank YouBT Costantinos, PhD

School of Graduate Studies, Department of Management and Public Policy, College of Management, Information and Economic Sciences, Addis

Ababa University