The last few decades have witnessed spirited debate over the role of institutions in fostering and frustrating the development process. The debate appeared to be polarised between the orthodox, NIEs, and a variety of heterodox analysts associated with the IPEs approach. The former focuses on the free-market camp enabling institutions in a ‘one-size-fits-all’ approach, and the latter argues that enabling institutional development from a context-specific perspective may influence the performance of economic development. The importance of institutions for the developmental state has received much attention since the 1990s, and the consensuses are that institutions matter in economic performance is no longer controversial. In addition,
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The developmental state of the twenty-first century will be oriented around the knowledge economy as opposed to manufacturing, with broader participation and rewards than those confined to an industrialising elite coordinated by a state bureaucracy (Evans, 2008).
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cross-sectional variations in economic growth performance have been shaped by the presence (or absence) of well-articulated institutions (Chang, 2002; Kiiza, 2006). Development planners and decision-makers should be aware of the importance of organisations and the potential usefulness of building context-specific, well- functioning, and effective institutions. These are not acquired through the wholesale importation of ‘best- practice’ institutions, as is evident from the effectiveness of the home-grown developmental states in East Asia (Johnson, 1982).
Building the institutional arrangements is process of ‘trial and error,’ and the institutional arrangements must evolve over time to respond to changing conditions. Such institutions affect the state’s capacity to define and implement its developmental programmes in a legitimate and credible fashion to achieve the development goals at different levels (Edigheji, 2010; Evans, 2010). The institutionalisation of the developmental state has received much attention in recent times to strengthen the development process. However, the leadership capabilities to build effective institutions and networks of institutions are the main challenge, especially in the developing countries that wish to adopt the developmental state model.
Developing countries face two fundamental challenges. First, ‘the challenge of achieving rapid and sustainable development’ and, second ‘the demand to have a greater voice and participation by all citizens in the process of decision making at different levels’ (Leftwich, 2005b). These challenges are complex because the institutional requirements to accelerate the development process are structurally different (Leftwich, 2005b). Developmental state institutions should be context specific but share common characteristics that explain their superior economic performance. ‘Getting institutions wrong’ would result in failure of development practices and establishing the right institutions will enhance the capacity of the developmental state to promote its development efforts.
Institutions interact with one another through broad and overarching sets of processes in which the state and economic and societal actors interact to make decisions. Institutions shape but do not determine human behaviour in economic, social and political life, so vibrant and context-specific institutions are crucial to address these issues in a proper and sustainable manner (Chang & Evans, 2005; Leftwich, 2005b). However, institutional contexts vary from society to society and the same developmental policies and strategies may not have the same outcomes in all societies. Institutions may promote or hinder development process depending on their type and their operation. The state should recognise that there are ranges of different institutions, such as social (governing social interaction and behaviour), economic (the rules and procedures governing economic behaviour) and political (governing the relations of power and decision-making), which often overlap and sometimes conflict to produce unintended or undesired outcomes. It is the manner of their interaction that so decisive in shaping the political economy of a country that in the creation and distribution of resources within the existing context and resource endowments (Leftwich, 2005b). Essentially, these institutions govern, express and sustain relations of power in the economy, as well as have a powerful effect on human behaviour and on the political economy of the nation; they are not easy to change in favour of individual interests.
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Developmental state must do two things when building institutions: (1) ‘develop a more adequate vision of how institutions shape economic behaviour and outcomes’, and (2) ‘create a more systematic and general understanding of how institutions themselves are formed and change over time related to overall change in the economy’ (Chang & Evans, 2005). To realise this, it is better to focus on institutions as key instruments, which enable the achievement of goals that require more coordination than individual rationality or rules of the game. It is better to understand them as constitutive of the interests and worldviews of economic actors and, therefore, institutions and economic actors are mutually constitutive (Chang & Evans, 2005). Institutional capacity building in the developmental state proceeds in parallel with political interventions aimed at restructuring the distribution of political and organisational power with a view to encouraging the construction of productive coalitions to support the economic transformation process. High-quality institutions are associated with higher average growth rates and lower levels of inequality. Strong social cohesion/s (broad-based, state–society coalitions) produces better institutions and these, in turn, lead to higher level of growth and a faire distribution of economic resources (see Figure 2.1).
The four dragons of the East Asian developmental states managed to achieve successful economic development by establishing workable institutions that enabled them to implement effective and coherent development strategies within a generation. By contrast, institutions have played a minor role in economic development in many African countries because there is an over-concentration of political power in the hands of political elites, and institutions are weak and non-context specific. In Africa, lack of effective institutions and committed political leadership, and an inability to enforce rules and regulations, often leads to corruption/or mismanagement of resources, which affects the overall development process. These institutional differences (in both formulation and capability) between East Asia and Africa, which arise from divergent ideologies, have resulted in significant differences in their economic development status. Therefore, the political elites of the emerging developmental states in Africa should draw lessons from East Asia and commit themselves to building well-functioning institutions by either modifying the existing ones or by creating new ones.
Figure 2.1: The role of institutions, development policy and strategies for developmental state
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It requires political commitment, stability and a continuity of development policies and strategies to achieve broad-based (inclusive) and sustainable development. Hence, building a developmental state in a participatory democratic approach is appropriate to overcome the wide range of challenges by creating an opportunity for broad-based and sustainable development (Chang, 2002; 2003a; Huyen, 2004). Visionary, committed and patriotic leadership and competent state institutions are indispensable for the effective functioning of the developmental states in a democratic approach (UNECA, 2011). In a region with diverse ethnic and cultural groups, stability will continue to be paramount in building effective developmental states via accommodating and empowering the vital interests of different stakeholders (Balema, 2014).
The emergence of more accountable governments and the introduction of more sensible development policies will be essential to ensure socio-economic and political justice (Radelet, 2010). Accordingly, Mkandawire discourages those who are proponents of authoritarian regimes (influenced by most of the East Asian developmental states) and who believe this is the only way in which developmental states can function cohesively (Mkandawire, 2010). There has been vigorous debate about whether authoritarian or democratic governments have been associated with strong economic performance in developing countries over the last decades. Overall, the relationship is mixed but in Africa, democratic governments like Botswana and Mauritius have been successful, while many of the authoritarian governments have failed (Radelet, 2010). In practice, for a state to become developmental it does not necessarily need to become authoritarian (Mkandawire, 2010). Nationalism can drive development and other social goals within a developmental state while giving an opportunity to all stakeholders to participate in the development process in inclusive approach. The deep sense of crisis and embarrassment in many African countries in the past has provided a new motivation for national development (Mkandawire, 2001).
To sum up, nurturing diverse institutions and building institutional capacities in the economy is socially engineered and required commitment from all stakeholders in the society. To build institutions, African developmental states need to consider the following points: first, they should avoid past institutions that are completely incompatible with the current situation; second, they need to improve some of the existing institutions to make them compatible with the current situation; and third, they must nurture new institutions based on their own context. Institutions are not rigid or static once they are established – they are dynamic and flexible, and change in accordance with the political and economic dynamism of global and local conditions. It is vital that African countries to recognise and understand the role of diverse institutions in fostering economic growth and development because institutions are on the increase and the development challenges are daunting. The current literature shows that the structure of social, political, and economic institutions influences economic growth and development processes. African states should, therefore, adopt a suitable development ideology, such as the developmental state, elaborate their development agendas, and implement these to satisfy the needs of the masses. Political legitimacy should be derived from running a successful economic process without suppressing the freedom of the nation. Hopefully, the new African developmental state will present a solid base for social engagement in economic transformation,
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strengthening the demands for a new and equitable national and international order. To realise this, a developmental state model requires strong political will and commitment, a long-term vision, a broad-based state––society coalition, and determination by political elites, and by the nation in general.