Reinventing the State for Economic Recovery, Growth and Structural Transformation (Part 1)
Aristotle famously described politics as ‘the master science’. In our twenty-first century integrated global industrial civilisation, I want to submit that, economics, in fact, is the real master science. Ask President Barrack Obama and any of the world leaders. The prospects of leaderships, and indeed, of entire nations, rise or fall on their capacity to manage the economy — to expand the possibility frontiers of welfare for the vast majority of their citizenry. The questions about democracy as the right system of government to safeguard our common liberties are fairly well settled – the End of History, as someone termed it. But how to build the Good Life, how to promote prosperity and happiness are the Big Questions for the world community of nations.
But economics can also beo a risky undertaking. It has been said that when a medical doctor does an experiment and it fails, perhaps only one a few patients will die. However, when an economist does an experiment and it fails, an entire nation may perish. Perhaps this is why John Kenneth Galbraith, one of the most influential of the 20th century, cynically described economics as being “extremely useful as a form of employment for economists”. Economists have been blamed for not having predicted the Great Recession that began with the Wall Street sub-prime crisis of 2008. Not too long ago, Her Majesty Queen Elizabeth II of Great Britain startled her hosts at the venerable London School of Economics and Political Science (LSE) by asking, “Why didn’t any of you see it coming?”
Truth is, some people did, and rang the alarm bells, albeit mutedly: Robert Shiller at Yale; Nouriel Roubini at New York University’s Stern School of Business and a little known Indian at Chicago University, Raghuram Rajan. We were not entirely surprised when Bob Shiller went on to win the 2013 Nobel Prize in Economic Sciences which he jointly shared with Eugene Fama and Lars Peter Hansen. Raghuram Rajan went on to head the Reserve Bank of India.
Economic science has been a vehicle for transformation of economies and has played its part in lifting more than a billion people out of poverty. Indeed, John Maynard, indisputably the most influential economist of the 20th century famously declared: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”.
A survey was conducted a few years ago on potential entrants to Nigerian universities. It was discovered that economics was the single most popular course among students in the country’s higher institutions. That is quite flattering for the economics profession. But it is not a good sign. If we go by the lessons of world development and the particular experiences of the Asia Pacific nations, the most popular courses at university level ought to be science, technology, engineering and mathematics – the so-called STEM disciplines. Without taking anything away from economics, accounting, business and the social sciences, I am persuaded that Nigeria’s long-term development requires that the majority of our graduates should be from the STEM disciplines.
My own undergraduate degree was in the Social Sciences — Economics, Sociology and Politics – majoring in the latter. I then veered into economics and development administration in Paris, subsequently concentrating my doctoral work at Oxford on the Economics and Politics of Development. It has been a highly rewarding multidisciplinary background. It served me when I became an economist at the African Development Bank Group. I was on the team that drafted the first policy framework paper on the New Partnership for Africa’s Development (NEPAD). The political concept originally came from three Heads of State: Abdoulaye Wade of Senegal, Thabo Mbeki and our own Olusegun Obasanjo. The ADB and the Addis Ababa-based UN Economic Commission for Africa (UNECA) were charged with the task of doing the technical work. I personally am proud to say that I drafted the first Concept Note on NEPAD. In doing so, I needed no one from LSE, Harvard or Chicago to tell me that Africa’s challenges must be tackled from all angles – economic, structural, institutional and political. It made, I hope, all the difference.
You see, the great economists of the past – from Adam Smith to David Ricardo, John Maynard Keynes and Gunnar Myrdal – were political economists rather than just narrowly defined ‘economists’. They understood that most of humanity’s challenges could never be defined in purely economic terms; rather they often involve sociological, political, structural and institutional factors all playing out together in particular economic scenarios. The doyen of Nigerian economics, our late Pius Nwabufo Okigbo, was perhaps Nigeria’s greatest economist. His own background was highly disciplinary – with degrees in law, history and economics. He was also at one time, Nigeria’s chess champion, although I doubt if he ever attained the heights of a grandmaster!
In the last half-century, major insights have been made in economic science. But the profession itself has come under increasing questioning due to the narrow-mindedness of its focus, quantification of trivia, and focusing on highly theoretical problems that threaten to make the discipline of interest only to other economists and nothing to do with the real world. This is probably why Her Majesty the Queen of England expressed such quizzical scepticism about economists. And it may also be why President Barrack Obama insisted on appointing a medical doctor and anthropologist Jim Yong Kim as President of the World Bank.
It is time we returned to the True Religion – to addressing Africa’s multifarious challenges with greater rigour, intellectual ambidexterity and paradigmatic humility. My message also has implications about how economics is taught in our universities. We must avoid rote learning and wholesale transfer of foreign models that do not work in our environment. I believe, of course, in the universality of science. But I am also persuaded that the paradigms underpinning economic research must reflect our own unique historical conditions and aspirations.
Why is Reinventing the State Important at this Historical Moment?
Until the Great Recession which swept like a hurricane across the advanced industrial economies, the reigning orthodoxy was that government is the enemy of the people, not their friend. Ronald Reagan in America and Margaret Thatcher in Britain anchored their monetarist programmes on the belief that ‘big government’ inhibits free market enterprise. They proceeded to ‘roll back’ the state through massive programmes of deregulation and liberalisation. We in the developing world were virtually coerced into undertaking structural reforms, with disastrous consequences in terms of de-industrialisation and deepening poverty.
Today, we know better. We know that the gods of the marketplace are naked masquerades. We also know that untrammelled liberalisation of capital markets has created untameable financial bubbles whose chickens will sooner or later come home to roost. Ever since Plato, Kautilya and Ibn Sinna, government has existed because man by nature is a social and political animal. Left on their own, men are beasts, governed by the law of nature where, as the Greek historian Thucydides tells us, ‘the strong do as they please and the weak grant what they must’. It is in living in community under the framework of the political state that civilisation evolves. German sociologist Max Weber defined the state as that organisation that monopolises the use of violence. The medieval historian and jurist, Ibn Khaldun, went ahead to define the state as the sole institution allowed to commit crime and get away with it. In the African royal tradition, one is counselled to “talk softly but carry a big stick”. It is indeed a wise counsel.
There has never been a perfect state anywhere. This is why political theory, as Michael Oakeshott taught us long ago, remains part of the great conversation of mankind. Men and powers must continually converse with one another on how to build the New Jerusalem; on how human beings can live together while preserving individual freedom and cooperating in building the ideals of a humane civilisation. This is why the Swiss historian Jacob Burckhardt describes the state as ‘a work of art’. Art is an eternal quest for perfection in a world of imperfectability. Whether in Africa, or in Europe, Asia and the Americas, the state is a work of art that we have to pursue with unrelenting faith. We have to keep at it with passion, dedication and hope.
In our globalised integrated world society, the state is everywhere in crisis. Technology has turned our world into the proverbial ‘global village’. But it has rendered governance even more challenging. Terrorist networks, global warming and viral epidemics transcend borders. Money now travels at the speed of light. No country can act on its own, no matter how powerful. And yet, cooperation and internationalism are not easy ideals to follow in practice. Everyone has become vulnerable. The competencies of government and rulerships have become more important than ever; so is the pursuit of international cooperation. On these alone depends the fate of civilisation itself.
According to two experts in the field of state-building, Ashraf Ghani and Clare Lockart, “Our international system is premised upon states that are capable of fulfilling a range of international and domestic responsibilities. As the locus of political authority in a country, the state’s decisions are simply assumed to have the capacity to implement those decisions, project its authority throughout the territory, possess a domestic resource base to meet its spending obligations, and have a legitimate monopoly on the physical means by which it can guarantee its citizens’ security”.
The key functions of the state as understood in our twenty-first century requires, according the following key elements: the presence of the rule of law; monopoly of the use of violence; effective administrative control; sound management of public finances; massive investment in human capital, including education, health, knowledge, training and skills; enhancement of citizenship rights through expanded opportunities for participation and ensuring reciprocal rights and obligations to all citizens; development of a competitive and forward-looking market economy.
The effective exercise of state authority in a manner that promotes economic growth while ensuring political stability requires not only high quality visionary leadership; it requires a sound and professionalized bureaucracy. Public policies must be suffused with social justice, inclusive growth and what the philosopher John Rawls termed the idea of ‘public reason’.
We are, sadly, a painfully divided people – divided on the fissures of ethnicity, religion and regionalism. For a country with the size, resources and innate potentials of Nigeria, progress can only come about through the forging of a new consensus among the ruling elites from across the country’s key constituencies. Nation building is a vital requirement for successful economic transformation. Many economists do not realise that this was a major factor in the emergence of the so-called ‘Asian Tigers’ in the seventies and eighties.
A good example of this is the island state of Singapore, where Lee Kuan Yew deftly resolved the ethno-sectarian divides that had torn his country apart in the past. Racial and religious riots were the bane of Singapore in the sixties, between Chinese Buddhists, Malay Muslims and Hindu Indians. He successfully mobilised a coalition of highly committed nationalist elites who shared a common vision for the development of the country.
What is crucial, in my view, is a common vision and commitment of all the political and economic elites to the creation of a developmental state that would accelerate the process of economic growth and wealth-creation. In contemporary development economics discourse, when scholars use the term ‘the developmental state’, they are generally referring to a country where the government has assumed the driver’s seat in propelling the course of economic growth and social transformation. According to the American scholar Peter Lewis, developmental states are those that have “successfully provided the collective goods for high growth and competitiveness”.
The developmental state makes ‘development’ its topmost national priority, encouraging citizens with the right mix of incentives to forego current consumption so as to maximize long-term economic performance. Historically, such states have tended to rather authoritarian, with the degree of authoritarianism varying from one to the other, depending on regime type, the nature of national conditions and the specificity of security challenges. In Latin America and Asia, authoritarianism was almost always an inevitable characteristic of developmental states. The North African country of Tunisia, a country where I lived and worked for several years as an official of the African Development, is a good example of a developmental state where authoritarianism was legitimised as a vehicle for achieving accelerated growth under the regime of the erstwhile Zine Abidine Ben Ali.
Another feature of the developmental state is commitment to property rights, strong markets and the sanctity of contracts. This provides clear signals for foreign investors who also enjoy tax holidays and other incentives.
Most developmental states have also undertaken land reforms. Beginning from President Park in South Korea in the 1950s, most Asia Pacific nations that have achieved rapid growth and structural transformation have also been those that have implemented courageous land reforms. Their leaderships have also mobilised enough support to defeat resistance by landed oligarchies. The failure of the Philippines to join the ranks of the Asian Tigers has been partly attributable from the failure of its power elites to undertake land reforms.
Most developmental states have also invested heavily in human capital development. They have given priority to ensuring universal compulsory education, expansion of higher education, especially in technical and engineering fields, and in the training and acquisition of industrial skills by its workers.
Developmental states tend to insulate their technocratic elites from societal pressures by giving them the autonomy to develop and implement policies for rapid growth and structural transformation. They have done this through the reform of the civil service and the creation of a merit-based bureaucracy, with functionaries that are well-paid and possess a vision of national destiny and purpose. The technocrats enjoy the power to issue orders and to guide markets and impose discipline on the private sector. The state guides the markets, with strict controls over investment flows.
Unlike African nations that pursued import substitution industrialisation, the developmental states of the Asia Pacific anchored their development strategies on export-led industrialisation. For most of sub-Saharan Africa, import substitution created inefficiencies and distortions, often reinforcing the neopatrimonial syndrome. However, export-oriented development may not be universal to all developmental states. Brazil, for example, as a Latin American developmental state anchored its long-term strategy on seeking to fulfil domestic needs and attaining a high level of economic and
Japan has been the prime example of a country where the state played a central role in the industrialisation process. While Tokugawa Japan was dominated by the Shogun feudal aristocracy, the imperial administration of the time took a back seat as far as economic development was concerned. However, following the Meiji Restoration of 1868, a re-invigorated government took it upon itself to modernise the society and industrialise the economy. Thus the state assumed a central role in the industrialisation of Japan; a process which has continued to our day, with government providing support to strategic export industries through MITI and other such institutions.
The rather astonishing transformation in the economies of countries such as Singapore, Taiwan, Hong Kong and South Korea provided a fertile ground for testing many theories about how developing countries could escape from the shackles of backwardness. A group of scholars based at the Institute of Development Studies in Sussex, England, were at the forefront of this new scholarly enterprise. The seminal work by Robert Wade was path-breaking in explaining the role of government in East Asian industrialisation. His work proved the fallacy of the ‘market-supremacy’ argument that was prevalent in the economics profession for much of the 1970s and 1980s as far as East Asia is concerned.
Crucially important is the quality of elite leadership. At the time of the break with Malaya, Singapore was largely a poor mosquito-infested backwater with rather poor prospects. Lee, who was a first-rate Cambridge educated jurist, was able to forge together a developmentally-minded elite coalition which has successfully propelled his island nation to the front ranks of industrial-technological nations. In the South Korea of the 1950s, President Park offered crucially important leadership to a broken and divided nation. His vision and statesmanship clearly marked a decisive moment for the social and economic rejuvenation of the Korean Peninsula.
Obadiah Mailafia
(Being the Being Abridged Text of a Dinner Lecture to the 57the Annual Conference of the Nigerian Economic Society (NES) held at the NICON Luxury Hotel, Garki, Abuja, Wednesday 28th September, 2018).