Chapter 8 Review Questions Answer Key

1. Capacity refers to the ability of states to make effective and appropriate technical decisions. This stems from having well-trained personnel, up-to-date equipment, and smaller, more efficient budgets. Autonomy refers to the degree of insulation a state has from domestic and external social forces. Ideally, a state should be well-insulated and run along meritocratic, rather than politically-influenced, lines. State decisions and policies should not be made on the behalf of special interests that have the ear of leaders. Developing countries often face low levels of both capacity and autonomy, making it difficult for the state to perform a successful developmental role. [p. 137]

2. The state is an entity with a monopoly over the means of legitimate force within a designated territory that it controls, with recognition of its control by other states, and empowered by the population with making public decisions. While this definition may seem straightforward, it is problematic in a developing-country context and has been accused of Eurocentrism—that is, being based on European experience by those who consider this experience to be normative. The most obvious prob­lem is that states in the European context developed a historical identity over thousands of years, along with slow political centralization, that in part reflects natu­ral geographic communities. In the developing world, there was generally no such centripetal historical evolution. Rather, states were carved out through European conquest and di­vision, and national identities and states were forged over short periods in response to European imperi­alism. [p. 134]

3. The idea of the compradorial state was developed by radical (Marxist-influenced) development analysts to describe the ties of the developing state to external interests, whether foreign governments, inves­tors, or military, and to the local resource-owning and internationally oriented capitalist class. Thus, this line of thinking sees the post-colonial state as continuing to be colonial in nature, run by an elite “bought out” by and/or in alliance with foreign interests. By contrast, a Weberian view emphasizes the rational-purposeful nationalism of a modern state, regardless of its origin. [p. 136]

4. A 1973 military coup in Chile replaced an elected socialist government and quickly implemented free market, neoliberal reforms. The size and role of the state in the economy was reduced, labour unions were broken, and opponents of the regime were brutally repressed. The country’s economy was turned from import- to export-oriented. The economy was opened to foreign investment, and state-owned businesses were privatized. Though Chile is now a de­mocracy, the same neoliberal policies have continued. Increased social spending has reduced abso­lute poverty, and there has been a successful transition of government from left-wing to right-wing parties (with both moving to the centre). Yet the success of new exports, such as fish, wood, wine, and fruit, based on state policies, has not reduced income inequalities or a strong dependence on copper exports. [p. 140]

5. For non-economists, “governance” has come to mean a wide variety of other things related to a supposed crisis of the state throughout the world. The crisis of the state in the North refers to the lack of interest and electoral participation among large segments of the population, as well as a supposedly growing cynicism about the increasing reach of the state over the course of the twentieth century. In the South, the crisis stems from the fragility of democracy, as well as from dissatisfaction with the ability of democracies to address long-standing structural inequalities. Therefore, the original economic definition of “governance” that focused on good regulation of markets is now matched with an emphasis on finding additional means of enhancing the participation of citizens, called “civil society,” as individuals and groups in collective decision-making through state co-ordination. [p. 144]

6. The term “rent-seeking” was coined to describe how states, even in the North, could become “captured” by special interest groups in the private sector, leading to policies that benefited a privileged minority. The charge of state corruption had broad appeal in the South and led initially to the success of neoliberal populists such as Carlos Salinas in Mexico and Carlos Andres Pérez in Venezuela. State capture now often includes the idea that powerful private interests, such as, but not limited to, foreign corporations, can undermine the ability of the state to pursue national policies in the collective interest and thereby undercut the democratic process. [p. 143]

7. Arguably, the relative dominance of the East Asian state as compared to other social actors, in the absence of natural resource wealth, enables it to provide greater leadership to the private sector than is possible in other regions with less dominant states. Many scholars who compare East Asian and Latin American industrialization, conclude that East Asia’s export orientation represents another key difference. Export orientation means that domestic producers have to produce goods and services that can compete in world markets. Export earnings offer a new source of revenue that the state can then funnel into new investments, including new industries, and thereby reduce pressure to borrow from abroad, as well as decrease exchange rate and interest rate volatility. However, mainstream economic institutions have not taken such challenges to market supremacy lying down. In 1993, the World Bank produced a rejoinder entitled The East Asian Miracle, suggesting that markets and macroeconomic balance were primarily responsible for growth, although it grudgingly conceded some role for the efficient Asian institutions that allowed markets to function well. [p. 141]

8. In 1994, Gereffi and Korzeniewicz suggested the theory of value chains for understanding locational power in global production supply chains. Given the daunting technical and financial obstacles of entering into advanced technological sectors and the crackdown by the World Trade Organization on some of the industrial policy instruments of the East Asian states, a few smaller states in the South attempted to enter into advanced components manufacturing. This might be a more viable industrial policy strategy for smaller developing countries seeking escape from the commodities trap. Costa Rica and Rwanda are two notable examples of states attempting to capture small subsectors of the IT industry. Since the 1990s, Costa Rica has worked hand-in-hand with multinationals to try to develop an IT cluster, including chip manufacturing (for Intel) and software, using state incentives, their attractive stability, and a close location to the US. It has been a challenge to develop the educational infrastructure to adequately train the workforce, and labour costs are higher than competitors in Asia. As a result, the industry retains many “enclave” characteristics, with limited ties to local businesses. More recently, from the early 2000s, Rwanda has been trying to enter into Internet services and cellphone manufacturing, with initially promising results. Here again, relatively stable and efficient government enables the experiment, but the same human capital limitations loom. [p. 141]

9. The early work of economist Douglass North (1981) as well as James M. Buchanan and Gordon Tullock (1962) of the Virginia School presaged a slow but steady shift of economists, from the 1990s onwards, to begin to acknowledge that non-market factors, particularly institutions, could play a major role in the healthy functioning of markets, implying a subtle but important shift away from neoliberal perspectives. These perspectives focus on impediments to market functioning—such as lack of information and uncertainty and inadequately enforced contracts or property rights. Others, such as Rodrik (2007), by contrast, suggest an active state approach might be needed. Rodrik does not endorse any clear prescription, stating that diagnostics for each situation must be conducted. His general approach is to suggest a market-conforming role for the state, such as investing in education or an industrial policy that helps to build upon existing export industries or ones where a clear comparative advantage exists. A weakness of these good governance approaches is that they do little to distinguish between what makes for a “good” versus “bad” institution, other than the results, or how one goes about creating “good” institutions. [p. 142]

10. Most development agencies have adopted some form of “results-based management” and, at least rhetorically, a recognition of the need to “consult” stakeholders. The Millennium Development Goals (MDGs), adopted in 2000 by a wide range of aid agencies, were designed to create some clear, measurable targets for donor assistance levels, with results to be achieved (such as the wiping out of certain diseases) over certain periods of time and the requirement for good governance by recipients. The goals were to be achieved in 2015, and while progress was made in some areas, the results are ambiguous and limited. While poverty has been reduced in the world, that reduction has been concentrated in certain countries, particularly China. In 2016, the UN introduced the Sustainable Development Goals (SDGs) to replace them. The SDGs expand the number of goals to 17 to include many related to the environment. Goal #16 is specifically focused on “peace, justice and strong institutions” and Goal #17 on “partnerships,” reflecting the governance agenda. The goals, such as wiping out extreme poverty, are to be achieved by 2030. It is an interesting exercise to point to potential policy contradictions among the goals, such as those related to sustainability (6–7, 11–15) and the more traditional goals of economic growth and industrialization. [p. 143]

11. For non-economists, “governance” has come to mean a wide variety of other things related to a supposed crisis of the state throughout the world. The crisis of the state in the North refers to political apathy among large segments of the population, as well as a growing cynicism about the integrity of state institutions over the course of the 20th century. In the South, the crisis stems from the fragility of democracy, as well as from dissatisfaction with the ability of democracies to address long­standing structural inequalities. Therefore, the original economic definition of “governance” that focused on good regulation of markets is now matched with an emphasis on finding additional means of enhancing the participation of citizens, called “civil society,” as individuals and groups in collective decision-making through state coordination. Studies have suggested that greater civic and political engagement (“social capital”) leads to higher economic growth and development. Certainly, Southern democracies have a host of deficiencies, ranging from common voter fraud to weak freedom of the press and judiciaries. These shortcomings have been viewed as both reflecting and exacerbating the often polarized nature of their polities dating back to their colonial origins. The new line of thought has led to a different use of “governance” to mean coordination of collective decision-making among stakeholders and had profound effects on development policy-making and practice, which now actively solicits outside parties (the stakeholders, generally limited to certain acceptable points of view) to take part in the decision-making process, explicitly including civil society to balance well-organized and well-funded lobby groups into the decision-making process. Thus, the state becomes as much a facilitator as a leader. In theory, all those affected have a say in collective decision-making, and the process is as important as the decision itself. For example, experimentation with participatory budgeting in certain municipalities in Brazil is seen as a new model for how to govern. In practice, such noble efforts are quite difficult to consummate. This new kind of open state requires a new level and set of skills in terms of state capacity that go well beyond simply posting information on a website and accepting complaints. Even on the local level, where participation is easier, studies show that those with more means tend to participate more. Similarly, gender, ethnicity, literacy, and free time could affect rates of participation. Then there is the question of how to deal with highly technical issues, such as how to monitor pollution from a mine or a factory. Moreover, the general public could be wrong—for example, in underestimating the long-term costs of climate change. Participatory governance is further challenged by the structural inequalities rife in the South that create factionalism within civil society. [p. 144]