Meeting Summary
Prof Khan
Prof Khan began by setting out what he sees as the
three phases of post colonial development policy:
1. Post- war policy which saw a consensus of interventionism;
2. 1980s focus on neo-liberal policies to cut back subsidies,
reduce inflation and encourage market led growth;
3. 1990s economic policy focus especially on market-led economic
growth.
Prof Khan then went on to present figures on the correlation
between growth and good governance (measured in terms of the
property rights index). He said he felt these highlight his
proposition that good governance is not the main vehicle for
growth that it is widely believed to be. Through the figures
he identified that there is no evidence to prove that good
governance spurs growth: in fact, fast-growing (i.e. 'converging')
and economically stagnating (i.e. 'diverging') developing
countries have similar governance ratings. He also emphasised
that historically OECD countries have not taken a route of
'good governance' as understood today in order to achieve
their development. Rather, developing countries that are falling
behind (diverging) first need to gather steam for an economic
transformation before they can address governance reforms
(and move towards being developed countries).
He continued by examining the difference in growth patterns
among developing countries. He argued there are three types
of growth strategies:
1. Sustainable catching-up strategies where strategies of
accelerated learning and catching up occur with effective
political capacities of rent-management;
2. Unsustainable catching-up strategies where strategies of
accelerated learning and catching up occur without effective
political capacities of rent-management;
3. Market-led strategies where existing technical competences
are used to integrate into global markets; which are likely
to be successful only if a country already possesses niches
of international competitiveness
From these strategies Prof Khan identified that successful
growth strategies had been based on either sustainable catching-up
or on market-driven growth utilising a country's comparative
advantage.
Prof Khan then went on to describe important roles for the
state that are not in accordance with the classic view of
good governance:
- Management of non-market transfers is critical. He argued
it is almost impossible for developing states to enforce property
rights, and that it may in fact be counterproductive. The
protection of property rights is costly (and consumes considerable
resources in developed countries); and it may be counterproductive
to protect property rights in situations where many assets
are not yet used productively.
- The cost of political stabilization can be high and to finance
these may require off-budget transactions (as fiscal systems
play a more limited role in developing compared to developed
countries); while a minimum amount of political stability
is absolutely critical.
- Catching up requires learning-by-doing. This will see productivity
levels rise and thus competitiveness in the international
market.
He then raised the question as to why contestable property
rights are the norm in developing countries. He asserted that
non-market transfers become necessary due to the informal
pre-capitalist economies being unable to produce surpluses
to protect themselves. He challenged the typical view that
non-market transfers have to be negative in the form of theft
or seizure; arguing that non-market transfers can create emerging
capitalists who aspire to use assets more productively. He
did highlight, however, that unproductive groups capturing
resources can have the opposite effect.
Prof Khan argued that it is important to make patron-client
networks help to create a class that is structured and organised,
creating politically-driven groups who build off-budget resources
and create a capitalist accumulation.
He emphasised that not all catching-up strategies are successful
and that the management of rents such as those generated by
the subsidization of catching-up industries are important
factors. He gave China as an example of a country where items
have been sold for less than the production costs due to heavy
subsidization. The subsidization is not indefinite but once
an industry becomes productive, effective rent management
leads to a situation of "benign" profit sharing
with public officials; while in turn promoting continued productivity
increases. Not all developing countries followed this path,
however. Where effective rent-management is lacking, what
emerges is what Khan calls a "malign" situation
of rent-absorption by socially powerful actors who are inefficient
and do not foster increases in productivity.
Prof Khan concluded by stressing that he was not opposed
to good governance per se and agreed that it is desirable;
but emphasised that recognising the importance of different
structural, economic and social reforms are imperative.
Chris Stevens
Discussant Chris Stevens reacted to the points raised
by Prof Khan by highlighting two key issues:
1. That the modern world is continually moving forward and
the continual change must be taken into account when setting
objectives; and
2. That there is a 'big country bias' and that small developing
countries will be less favourably invested in, despite their
quality of governance.
Stevens highlighted his belief that there should be no expectation
that Africa will follow the same path as East Asia. He made
an explicit point of agreeing with Prof Khan and highlighting
the importance of rent capture and the links between government
and industries. He emphasised the need to facilitate better
links between government and industries to ensure productive
rent capture.
Discussion
The following points were covered in the discussion:
- The importance of governance: Prof Khan argued that it
was important but it must be seen as a facilitator for development
- Models of developmental success: the view was that although
there can never be specific blueprints for success, intermediate
generalisations can generate broad ideas of how to react and
possibly solve challenges
- Intervention for progressive rent transfers: strong state
capacities are a precondition for effective rent management
capacities. Taiwan highlights the importance of strong state
capacities in development
- Donor engagement in volatile political arenas for development
issues only: it is important to aid and support stability
to ensure that long-term decisions are focused
- The importance of a bourgeoisie in a country's development
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