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Andrzej Bolesta: AS A DEVELOPMENTAL STATE 105

CHINA AS A DEVELOPMENTAL STATE

KINA KAO DRŽAVA KOJA SE RAZVIJA

ANDRZEJ BOLESTA, Associate Researcher Department of Government London School of Economics and Political Science

Abstract: Developmental state is often conceptually positioned between liberal open economy model and a central-planned model. The theory of developmental state isn’t capitalist or socialist. The developmental state is based on combinations of positive advantages private business and the positive role of government. First of all, requires a state which can create and regulate appropriate conditions for development. Successful conditions require a state which has the necessary tools to deal with burden, ant it is not merely the guardian of certain freedoms. The model of developmental state is present by China example. This paper try to contributes discovering the main futures of the model developmental state. Key words: developmental state,interventionism,fre market,neo-liberal economy, democracy.

Sadržaj: Model država razvoja se često konceptualno postavlja između modela liberalne otvorene ekonomije i modela centralno-plansek ekonomije. Teorija države razvoja nije kapitalistička niti socijalistička. Država razvoja se zasniva na kombinaciji pozitivnih prednostti privatnih biznisa i pozitivne uloge vlade. Prije svega, ekonomski razvoj traži državu koja može stvarati i regulisati odgovarajuće uslove za razvoj. Uslovi za uspjeh takođe traže državu koja ima potrebna sredstva za rješavanje mnogih situacija, a to nije samo zaštita određenih sloboda- Model države razvoja je prikazan na primjeru Kine. Rad ima, pored ostalog, i cilj da prikaže glavne karakteristike države razvoja. Ključne riječi: država razvoja, intervencionizam, slobodno tržište, neo-liberalna ekonomija, demokratija.

JEL clasification: P 50, O 38; Preliminary communications; Recived: June 27, 2007

1. The Theory of Developmental State admits that ‘one of [his] main purposes in introducing the idea of capitalist developmental state […] was to 1.1 Definitions go beyond the contrast between the American and Soviet economies’ (Johnson 1999: 32). Its roots are Meredith Woo-Cumings (1999: 1) describes drawn from the theory of mercantilism advocating the theory of developmental state as the explanation intervention of the state in the economy. for the East Asian industrialization. According to It is believed that, historically, developmental ‘it is a shorthand for the seamless state existed in Bismarck’s Prussia and in during web of political, bureaucratic, and moneyed influences the Meiji era. The governments of those states that structures economic life in capitalist Northeast followed a state designed developmental path and Asia’ (Johnson 1982). Chalmers Johnson in his book until now have been favouring a state interventionism MITI and the Japanese Miracle, used this term analysing over a liberal open market, be it in the form of East the process of the industrialisation of Japan. Asian fast developer or of what later became the It is often conceptually positioned between continental-European model of a capitalist welfare a free market capitalist economic system and centrally state. It is, however, the research on which planned economic system, and called a plan-rational eventually prompted the theory’s formulation and capitalist system, ‘conjoining private ownership with allowed for it to be implemented in the scholarly state guidance’ (Woo-Cumings 1999: 2). Johnson debates and literature. 106 MONTENEGRIN JOURNAL OF ECONOMICS NO 5

1.2 Developmental state and state strategy. A neo-liberal economic model seems to interventionism have a number of shortcomings which hinder fast development in developing countries. Chang (1999: Positioning the theory of developmental state 185-7) argues that this is due to the fact that it does between a liberal open economy model and a centrally- not take into consideration that for developmental planned model suggests its being neither capitalist purposes there has to be a limit in liberalisation and nor socialist in texture. The process of post-socialist depolitisation of an economy. He points out that transformation in countries such as Poland witnessed ‘politicising certain “economic” decisions may not only calls for the establishment of neither nor be inevitable, but also desirable, because the world is socialism, but a system comprising market ability to full of assets with limited mobility and owners who are fast socio-economic development and socialist welfare naturally determined to prevent changes that threaten stability. This debate, however, misplaced certain their current positions’ (Chang 1999: 191). He also concepts as the two postulates could be achieved, as for underlines that ‘the most important insight from early example, in capitalist social models of interventionist development economics was that systemic changes state such as those existing in continental Western need coordination’ (Chang 1999: 192). Successful Europe. According to Loriaux, ‘the developmental coordination requires a state which has the necessary state is an embodiment of a normative or moral tools to deal with the burden, and is not merely the ambition to use the interventionist power of the guardian of certain freedoms. state to guide investment in a way that promotes a In East Asia, it had been judged that a theory certain solidaristic vision of national economy’ of neo-liberal model of economy was not suitable as (Lariaux in: Woo-Cumings 1999: 24). Ha-Joon Chang a state policy aimed at accelerating socio-economic underlines that ‘economic development requires development, long before this very neo-liberal a state which can create and regulate the economic ideology became the world dominating doctrine and a and political relationships that can support sustained decade or so later turned out to be a failure. industrialisation – or in short, a developmental state’ One can, however, argue that in the case of (Chang 1999: 183). Consequently, a developmental the and, to a lesser extent, the United state seems to be an interventionist state. Kingdom, the economic model brought about The introduction of developmental state extensive positive changes as far as socio-economic theory into the state ideology means, in real terms, development is concerned. Two issues need to be a departure from a neo-liberal economic ideology addressed in analysing this particular case, firstly, the and a drift towards state interventionism. It seems, history of those states’ economic policies and secondly, however, that this interventionism does not handicap the time in which such rapid development took place. socio-economic development as it was often the Firstly, in analysing developmental successes and case in the centrally-planned economies of Central failures of the American economy, one needs to take and Eastern Europe, but it supports developmental into consideration the importance of interventionist trajectory. Moreover, Johnson (1999) points out to the policies of the XIX century, especially in the agrarian important element of the developmental state from a sector, which allowed the accumulation of capital. microeconomic perspective, namely the cooperation Tomkiewicz (2006) argues that domestic capital between private business and government or, in other accumulation is essential in enabling stable, long- words, the private sector and the public sector. Private term development. One can also argue about Great business becomes a partner for the government in the Britain’s colonial past, which allowed for significant developmental endeavour. It is, then, private business wealth expansion. Having obtained wealth one would which is an important part of the developmental state; advocate liberal economic models, as it simply would hence a developmental state is capitalist in nature, as extent opportunities for the accumulated capital to be historical examples prove. re-invested. This leads us to the second point. In all Can a developmental state be created in an cases of developmental state, the countries would not economy of a neo-liberal nature? It seems hardly have accumulated wealth to dispose of it in the hope possible to achieve extensive developmental goals in an of additional gains. As the UK and the US case shows, environment where authorities have very limited power one needs to acquire a certain volume of economic in directing investment, regulating its intensity and assets first, using often interventionist policies, to influencing institutions, companies and communities continue liberalisation, if this liberalisation is indeed so that they follow a certain overall development Andrzej Bolesta: CHINA AS A DEVELOPMENTAL STATE 107 needed. Once a developmental state reaches a certain the state. Japanese state bureaucracy, unaffected by level of development, as Japan, Korea, and democratic elections, as it in fact should be in a liberal have, one can argue for liberalisation, not democracy, seems to have a larger control over state however falsely, as a remedy to the underdevelopment governing than in other democracies. As Johnson of the world, but for its own internal interest to create puts it, ‘who governs Japan is Japan’s elite state conditions for wealth expansion. bureaucracy. It is recruited from the top ranks of the Moreover, the question of neo-liberal economy best law schools in the country; appointment is made and interventionist state can be addressed from the on the basis of legally binding national examinations global perspective. The so called global economy is – the prime minister can appoint only about twenty by no means liberal. Casting aside Joseph Stiglitz’s ministers and agency chiefs - and is unaffected by important argument about asymmetry of information, election results (Johnson in: Woo-Cumings 1999: 14). and Alexander Hamilton’s (in: Woo-Cumings 1999: If indeed, it is “the elite state bureaucracy” 5) shyness of capital, one needs to remember that which governs the state, and also serves as a buffer there still are many trade barriers, hence the need for between politicians and the state, or more precisely, WTO negotiations, as well as powerful forces such as between democratically elected politicians’ ideas governments of large economies and international and management of the state which is balanced corporations, which simply influence, for example, and developmental in nature, then a democratic prices of goods, by following certain policies (See more system can probably be replaced by a form of in: Ha-Joon Chang 1999: 197). Developmental states, authoritarianism, where the power legitimacy is drawn as their economies are initially mostly export-driven, from developmental achievements and not directly must comply with the international conditionality and from public elections. On the other hand, however, work out their own position in the global economy. It we may think about democracy as a pervasive cannot be achieved without a strong state, legally able system in which we defend the right of the society to influence the directions of development. to choose their leaders and be governed by them, at the same time realizing fully that in order to maintain 1.3 Developmental state and democracy a developmental path one needs to curb aspirations of the democratic leadership. This is an achievable Another issue refers to the question of goal, as we can be satisfied by having the power to political systems of developmental states. Due to its choose our rulers, regardless of how imaginary their alleged sensitivity, as well as, in a way, doctrinarian role in governing the state is, and as we are convinced character, there seems to be very little research that the developmental path of our country bringing conducted on the political environment necessary for improvement to our lives will be maintained. In a developmental state to thrive. Although there does Western democracies, the public administration seems not seem to be a direct link between a developmental to be a type of shield to protect public interests from state theory applied and the genus of political system politicians, in addition to being a structure to transform existing in a particular country, the possibility of such the ruling elite’s ideas into policies. In Japan, however, a correlation should not be easily dismissed. It is true this role seems to be even greater. that developmental state has existed in authoritarian Consequently, it seems justifiable to claim Korea and Taiwan as well as in allegedly democratic that a developmental state would be difficult to Japan. In fact, Japan was the first East Asian state to sustain in a fully democratic system in which people be considered a developmental state. enjoy extensive rights. In order to follow a strict One should, however, search for a plausible developmental path one needs to limit society’s ability explanation for drastic reduction in the dynamics of to counteract the state’s efforts, in favour of particular in both Korea and Taiwan upon the goals dependent on one’s affinity to a certain social introduction of Western-style democracy. One should group. My conviction derives from a lack of belief also take into consideration that developmental in an altruistically motivated conduct in the majority state in Japan can be traced back to the Meiji era, an of each society, even less so in the long term. In the undemocratic period of time in the Japanese history, macro perspective, societies, democratic or not, are as well as the fact that in contemporary Japan it is the mostly interested in increasing their own wealth in a bureaucratic structure which is believed to manage the relatively short period of time. The developmental country’s affairs and democratically elected politicians state enables developmental advancements. However, seem to have limited influence on the running of 108 MONTENEGRIN JOURNAL OF ECONOMICS NO 5 the process of improvements is by no means linear not applied some sort of developmental state theory and steady and would involve interim recession and into their governments’ policies. B.R. Schneider undoubtedly geographical and social differentiations (1999) describes the desarrollista states of Mexico in gains. Hence it requires a set of policies motivated and , being examples of developmental states. by an overall long-term target and not individualistic Those cases, however, are significantly different from micro goals. their Asian counterparts. Schneider believes that two Johnson, however, stresses the significant main elements of the desarrollista state are political differences between traditionally authoritarian states and capitalism and appointive bureaucracy. The first term authoritarian or limited democracy type developmental refers to the close ties of business and the ruling elites, states, by drawing from the concept of legitimacy of which may suggest a conceptual closeness to the East power. I am not aware of Johnson’s motives in making Asian states. In East Asian countries, however, the such a strong distinction; nevertheless the argument relation between business and government is based about the legitimacy seems convincing. He stresses on an agreement on common goals, strategies and that ‘the source of authority in the developmental state rules, on mutual complementariness in achieving is not one of the Weber’s “holy trinity” of traditional, developmental targets and on a type of partnership. rational-legal, charismatic sources of authority. It In political capitalism the state and business seem to is rather, revolutionary authority; the authority of a be connected in one structure, where the ruling elite is people committed to the transformation of the social, also a business elite. The position of businesses in the political or economic order. Legitimisation occurs from economy depends solely on who is in the government. the state achievements, not from the way it came to Although the is undoubtedly not power’ (Johnson 1999: 53). ‘In the true developmental free from corruption, the Latin American model state, […] the bureaucratic rulers possess a particular seems in fact to be an essence of corruption. The kind of legitimacy that allows them to be much more appointive bureaucracy is, on the other hand, a very experimental and undoctrinaire than in the typical distinctive element of a desarrollista state, where a new authoritarian regime’ (Johnson 1999: 52). government usually appoints most of the positions within the administration, unlike in Japan. 1.4 Developmental state in East Asia In view of the recent economic achievements of , one also needs to investigate the Indian As mentioned earlier, the nativity of case as a potential developmental state. During most developmental state is believed to have taken place of the second half of the XX century, the Indian in Europe and Asia. Johnson (1999: 6) suggests that developmental state failed and the social and economic in East Asia, economic development, aimed to be achievements throughout that period where rather achieved via the introduction of developmental state insignificant, though there were some evident successes. theory into the mainstream policies, was supposed There seem to be various reasons for India’s failure, to combat Western imperialism and ensure national one of them being the fact that the economy was not survival. One can risk an assumption that, from the liberalised enough and state policy too interventionist historical perspective, it was the Asian developmental in nature. Although one needs to acquire a balance state concept which prevailed whereas the early- between liberalisation and interventionism, and the capitalist European model was replaced by the social- suggests that such a balance is democratic interventionist capitalist state present endemic to every country, it is also evident that what in parts of continental Europe such as France and is being criticized is an element of the developmental Germany or in Scandinavian countries. One cannot state. It is not, however, state interventionism itself dismiss the developmental achievements of those which should be considered a part of the institutional states, however, one needs to acknowledge the very environment of the developmental state, but rather, different conditions of Asian states while embarking as mentioned earlier, a wise, developmentally-focused on and following a developmental path. Consequently, interventionism. Unlike in the case of liberal ideology, it is the East Asian states which are considered to be or where almost everything is left to the invisible forces have been developmental states, namely, Japan, Korea, of the market, with state interventionism comes Taiwan, Singapore. Naturally, more attention has been responsibility to manage the country in a wise manner. paid to large economies such as Japan and Korea in This very management of the state and, especially, the the analyses of the developmental state theory. economy, and its failure seem to be the main obstacle That is not to say, that other countries have Andrzej Bolesta: CHINA AS A DEVELOPMENTAL STATE 109 in India becoming truly a developmental state. private sector plays a crucial role in the development of Moreover, it is probably not entirely unfounded to the country. Moreover, one can insist that East Asia cases claim that the Indian political system could, to some provide a pattern defining an adequate developmental extent, contribute to meagre developmental results path for countries of the South. The developmental as the main agenda seems to be achieving short-term state is introduced to rather poor economies which effects. require significantly better developmental dynamics. There does not seem to be a comprehensive This dynamics can be mostly sustained by export-led explanation for the reasons why it was particularly growth, which then, in theory, will create means for the East Asia region, where the developmental state combating , generate new work places, etc. model actually worked, except for some arguments Hence, a developmental state becomes an exporter as to why it has not worked elsewhere. Undoubtedly, of its own products. In time, the volume of exports the state philosophy, as portrayed in the theory, was remains high, its nature changes, but the development attractive to ruling elites and societies and there were is more and more fuelled by domestic consumption. conditions to implement it. The existence of “fertile Eventually, once the society reaches a certain standard ground” can probably be traced back to historical and of living, it will be the domestic consumption which cultural reasons. will generate the economic growth. Probably at that stage a developmental state becomes a developed 2. The Developmental State of China state. Is China then an example of a developmental Having analysed the concept of developmental state? It seems beyond any doubt that the post- state one needs to pose the question, how much is China socialist transformation in the PRC has been aimed a developmental state? Does it fulfil the requirements at the significant acceleration of socio-economic to be called one? Does the Chinese government use development. In fact, the facilitation of a developmental developmental state theory as the main ideology of path was an element of China’s institutional the state? It is by all means clear that Marxism or arrangement prior to the reform era. Lin (2006) points even Maoism had long been abandoned as guidelines out that one of the main goals of the CCP upon taking for the authorities conduct, although socialism, with power, was to overcome backwardness and allow the somewhat “spacious” interpretation possibilities “of state to develop faster. Among misplaced policies Chinese characteristics”, remains officially in place. and misdesigned strategies, some positive changes Let us reiterate the very features of the were achieved. Johnson (1999) argues that in order developmental state, as they have been agreed in to accelerate development, China and North Korea the course of international research on the subject. chose communist modernisation, whereas Japan and Firstly, a developmental state is a state in which the , a capitalist developmental state model. authorities’ objectives are to achieve fast socio- The “communist modernisation” did not achieve economic development. Secondly, these objectives are expected results, hence the necessity for gaige kaifang. achieved via the process of industrialisation. Thirdly, Developmental trajectory of China’s post-socialist although the strategy and goals might be drafted by transformation cannot be put in question. One can, at the ruling elite, the state transformation is facilitated most, question the Chinese achievements in the social by competent bureaucracy, a state administration, strata of development. On the other hand, however, which is a structure largely independent from possible ‘Japanese people’s standard of living did not change democratic choices of the society, unlike in Mexico anywhere near as much as the change in the Japanese and Brazil. These choices might as well be irrelevant gross national product’ (Johnson 1999: 50), which, as a political system of a developmental state is some claim, has become a pattern in the Chinese usually authoritarian, or at least heavily guarded from transition. the influences of democratically elected politicians. As far as the process of industrialization is Fourthly, the process takes place in the institutional concerned, China has continued the efforts of the environment in which it is the state which dictates not pre-reform era, though modernizing the industrial only the norms and the rules of the social, political sector, changing to a certain extent its profile, and and economic existence, but also the directions of developing new branches. Socialist heavy industry development. Hence it is an interventionist state in development has been replaced by market value added nature. Fifthly, although it is indeed an interventionist goods production. state, the economic environment is capitalist, where the 110 MONTENEGRIN JOURNAL OF ECONOMICS NO 5

Does China possess a competent state pattern of logic one must arrive at the conclusion that bureaucracy? The reforms, in which Party officials China is not an example of a developmental state, as have been replaced by civil servants, indeed increased the theory of developmental state can be applied in the competence and effectiveness of the state conditions. All those assumptions administration. Civil servants are relatively well paid. seem wrong. Capitalist systems around the world differ. The structure, however, unlike in Japan, is designed China’s economic system is merely a type of capitalism, to fulfil the wishes of the ruling elite. The ruling despite the fact that it might be perceived as not entirely elite, however, is to a great extent free from societal developed and to a great extent malfunctioning. Its pressure. As this might not be so dangerous on the existence does not preclude its evolution towards other state level, where the leadership seems to be drawn types of capitalism. Private production means rights from competent cadres, it might pose problems – an important element of every capitalist system – are at a provincial level, where corruption is higher, extremely unlikely to be abolished, regardless of the transparency non-existent and temptation greater. In ideological and institutional direction the PRC decides time, one should, however, expect an evolution of the to follow. public administration towards greater independency Although it cannot be proved yet, current and higher professionalism in governing the country trends show that China will follow the developmental and provinces, as it has been the case for the last 20 state pattern. Current growth is export-driven. For years. decades China’s products have been present around Is the Chinese state an interventionist state? the world, often to the dismay of local producers, the The communist legacy and a lack of democratic rules affluent in developed states and the poor in developing and procedures would suggest that the state has all the countries. An increasing share of Chinese production means to intervene in every aspect of political, social is, however, consumed domestically, as a richer society and economic life. Indeed, the Chinese state is perceived can afford to purchase more goods. as interventionist. One needs, however, to distinguish The above analysis shows that China is between interventionist and intrusive. Although the a developmental state. The Chinese authorities authorities can and often do exercise extensive control conduct a developmental policy via industrialisation, over the three above mentioned areas, there seems in an undemocratic environment. It is the state who to be a trend in the Chinese economy to accelerate supervises the economic changes of the country and liberalization. The trend is perceived by some as a intervenes where necessary, although its power is by no slow but firm departure from interventionism towards means absolute. Constant improvements of the public a liberal market economy, perhaps even an American administration will probably prevent the type of bad style economy. Nevertheless, the state so far does management that has been prevalent in India, or the control the developmental directions of the country chaos of political rotation that has dogged Mexico and and its regional intensity and realizes the agreed Brazil. strategies. Naturally, it does not mean that China The developmental state theory is not a recipe moulds its institutional system or even less develops in for successful civilisational advancements of a nation. the exact manner and speed as expected by the ruling It is, however, a state philosophy which can create elite. an adequate ground for developmental efforts. This Some believe that China’s departure from ideology puts development in the forefront agenda. socialism is not definite and not decided. It is claimed, We shall not, however, accept this theory as dogma. therefore, that China does not have a capitalist Perhaps, in view of the Chinese developmental economic system. The official propaganda does achievements one needs to reshape the theory not help in clearing any doubts in this matter, as constructed in the 80’s, based on the retrospective it advocates the existence of the Chinese model of economic achievements of certain states throughout socialism. Some scholars would be confused by the the XX century. Its sidetracking in the 90’s is a vital Chinese economic arrangements due to the fact that it signal of the necessity of its reformulation. First of is the communist party which still maintains the power, all, the means to development will probably be less so it is allegedly not possible for such a structure to and less dependent on industrialisation of the states preside over a capitalist system (see: Balcerowicz and more at developing services. It is an inevitable 1997), or that alleged gradual Chinese reforms would consequence of the post-industrial era. Second, the not as yet result in the capitalist model. Following this more educated and enlightened the societies, the Andrzej Bolesta: CHINA AS A DEVELOPMENTAL STATE 111 less reason to maintain undemocratic or “shielded” Another major threat to the actual democratic regimes, hence fully liberal democracies implementation of the theory of developmental may become developmental states, provided the state could be a sequel to the situation of early 90’s societies can choose a competent elite to govern. where the triumph of the neo-liberal economic Third, better transparency in business relations and ideology rendered the interventionist policies useless less asymmetry in information about the global and wrong in achieving economic prosperity. The economy caused by technological advancements may current attack on the idea of developmental state slightly reduce the role of the state in supervising the may unlikely come from the proponents of the development, though this role will probably never be discredited economic philosophy, but rather from the eliminated entirely. supporters of the idea of building a global economy One also needs to remember that in which, by definition, the role of states seem to be introduction of the developmental state theory into on the decrease. One, therefore, needs to underline the state policies and state main ideology may result the fact, that the only proven track of dynamic in some negative effects, which, on the other hand, socio-economic advancements of poverty stricken are also common in other countries. In the process developing countries has been realised by states, which of enriching the nation the state might prefer to have had extensive powers to influence the economic, enrich itself and not the people. The corruption, so political and consequently social life, and to control endemic in centrally-planned economies and also the directions of development. It does not necessarily existent in liberal economies is indeed a great threat mean that such a state must be an authoritarian one, as to development, as Dutta and Mishra (2004) show in it may as well be democratic. It must, however, be an their studies analysing poverty traps and inequality. interventionist state. No neo-liberal experiments with The competent elite and professional a limited state role have produced in the developing administration should ensure balanced development world significant improvements in the standard of of all regions and all groups. This tool is not available living of the poorest parts of societies, despite De to those governing a neo-liberal model of economy, as Larosiere’s (2002) claims regarding Morocco. the capital ventures where it sees best opportunities.

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