SEGUNDO ACTO

As we noted in Chapter I, from 1980 onwards the neo-classical views on economic

policy^ and market reforms have dominated the development debate. The SAPs

undertaken by a number of developing countries under the auspices of the IMF and the World Bank have become the main conduit for promoting the neo-liberaP development models. As a result, governments have adopted policies to reduce the scope of state’s intervention in the economy. Market-friendly strategies — as propagated by the World Bank (World Bank, 1991a) — have taken hold in most parts of the developing world.

The 1997 World Development Report (World Bank, 1997a) is, therefore, an

important point of departure for the World Bank concerning the appropriate role of the

’ Both Chapters I and II provide details of the policy prescription of the World Bank and the IMF and their ‘market-friendly’ approach to economic development.

^ The term neo-liberal refers to those economists who have revived liberalism in its new form. Both in theory and practice liberalism has, over the last two centuries, advocated the central idea of individual liberty under the rule of law. People must be allowed to pursue their own interests so long as they observe the rules of not encroaching upon liberty of others. In economics, liberalism was closely associated with market capitalism based on free competition and free trade. However, under the Keynesian influence, in the post-world War II era, the character of market capitalism changed significantly, with the state assuming responsibility to ensure full employment and social welfare. Leading the attack against this state regulation of market capitalism, the neo-liberal economists like Milton Friedman and James Buchanan revived liberalism in its new form by providing theoretical arguments to show that government intervention — except in provision o f public goods — is generally contrary to public interest and, through

rent seeking activity, it leads to unproductive use of scarce resources (See Eatwell, et. a l, 1991 :pp. 173-

175). The terms neo-liberals and neo-classicals are used interchangeably in this thesis. Although the former has broader political-economy connotations.

State in development^ The report confirms the evidence that the success of today’s industrialised world and the post-war “miracles” of East Asia is not due to a minimalist approach to the state. Instead, it argues that these examples have shown that development requires an effective state, one that plays a facilitating, encouraging and complementing role to the activities of private business and individuals.

“[C]ertainly, state-dominated development has failed. But so has state-less development — a message that comes through all too clearly in the agonies of people in collapsed states such as Liberia and Somalia ... Without an effective state, sustainable development, both economic and social, is impossible” (World Bank, 1997a;p.III) .

Our analysis in this chapter of country specific development confirms the revised views of the World Bank which contradict the neo-classical approach to development management and its call for ‘rolling back’ the state.

3.8 Conclusion

This chapter has provided a theoretical and empirical analyses of planning and the market in development. The role of the state in using the plan and market in securing

development have been shown to be intertwined and mutually reinforcing. The

effectiveness of planning in securing development has been demonstrated in relation to particular countries, e.g. the impact of planning on achieving higher standards of living in Sri Lanka.

We have shown that the path of development a country adopts depends on a number of factors which include its initial conditions and its resource endowment. And that the outcome of development planning is similarly influenced by a number of historical

’ The Report states that “the state’s potential to leverage, promote, and mediate change in pursuit of collective ends is unmatched. Where this capacity has been used well, economies have flourished. But

where it has not, development has hit a brick wall” {ibid. ;p. 157).

factors the political economy of the country, external factors and the context of international political economy in which it embarks on its development process.

We have shown that there are compelling reasons for developing countries to adopt development planning in dealing with problems of capital scarcity, poverty, unemployment, income distribution, market failures and unfavourable terms of trade. However, we have shown that planning and market need not be seen in mutually exclusive or static terms. They can be complementary and their relationship may change over time depending on circumstances.

An important factor which influences the path of development selected and the possible outcome is the nature of the state in each country and the quality and effectiveness of planning. In the case of China, planning has enabled it to establish a high degree of self-reliance which has in turn given it freedom of manoeuvre in relation to domestic political, social and economic pohcies. Planning also has enabled it to achieve a qualitatively better development than India, where planning and the market have been utilised.

Similarly, in the case of Japan and South Korea, the strong commitment of the state and favourable external factors, enabled a combination of planning and the market mechanism to secure very high levels of development.

In Oman too the combination of plan and market has been crucial in securing socio-economic development through two decades of development planning.

In a world divided by large disparities within countries and between countries, where comparative advantages are being gradually eroded, and new competitive advantages are created, the case for ‘rolling back’ the state is indeed very weak. On the contrary, a strong and effective state is required to negotiate the obstacles which impede the development process in the developing countries. In fact, development is a dynamic

process, and it invariably is a process in which planning and direction on the one hand, and

freedom of private enterprise on the other play mutually reinforcing roles, albeit with the

level and intensity of the one or the other changing with each stage of development.

Appendix 3-AI