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Merkeb Negash, Special to Addis Standard

All previous articles on Ethiopian developmental statism on this magazine started with what the Ethiopian developmental state fails to be. It is argued that the Ethiopian state is nothing like the highly sophisticated state apparatus of the East Asian states and that it is – as a result- corrupt, soft and prone to capture. This pessimist diagnosis of the Ethiopian state is followed by highly ambitious, if not naïve, prescriptions that are neither necessary nor achievable at this level of socio-economic development.

My argument is that these analyses are based on orthodox economic assumptions, partial reading, if not misreading, of the East Asian experience, and above all the result of epistemic closure than empirical evidences. First, the assumption that only good institutions bring about development is no more the only game in town.  Second, the assumption that East Asian states managed to bring about an economic miracle because of their ideal institutions ignores the fact that these states started from a very low base and airbrushes the daunting and ugly process of institution building they went through. As a British journalist once said, to be an expert on East Asia all one needs seems to be “a rush of statistics, an occasional nod to Asia’s history and a Confusion aphorism or two.”

So, in my view, the conclusion that the Ethiopian state is far from the type of bureaucracy that a developmental state needs is pessimist at best and uninformed at worst. The Ethiopian state is by far efficient and effective than the initial conditions of the East Asian Tigers.

The political dynamics of state building: Byond fairytales

Rhetoric aside, appropriate institutional structures did not always exist in successful East Asian states. Except for Japan, all East Asian states had a rather poor human capital base at the beginning of the post WWII period, and this was reflected in the low quality of their bureaucrats. Especially Korea was the poorest of the lot and used to send its bureaucrats for extra training to Pakistan and Philippines until the late 1960s. In the 1950s, Korea was ruled by a Princeton graduate who was so removed from the reality of the Korean life that he once famously complained that Korea had a rice shortage because people would not eat things like wheat and beef.

Moreover, even in the mid-1980s, the averages of the Knack and Keefer indexes of institutional quality for the Asian high-growth economies were only a little better than African countries. According to Dani Rodrik, cited in Mushtaq Khan, Indonesia scored the same as Congo, while Korea, Malaysia, and Thailand were at the same level as Côte d’Ivoire. Only Japan, Singapore, and Taiwan had high scores and none were remotely poor by then.

Interestingly, Ethiopia currently has a large number of reasonably well-educated professionals and a relatively well-trained and capable bureaucracy than the initial condition of these countries. The Ethiopian state also has a strong and sophisticated channel of control and extraction unparalleled by any other African state. It has an outstanding apparatus to organize the public, collect tax and conduct the affairs of the nation. These, coupled with the government’s strong budgetary commitment to invest in human capital, would mean that Ethiopia has a relatively remarkable institutional capability.

Moreover, the Ethiopian state does also have pockets of efficiency, like the PM office, which are staffed with ‘the best and the brightest’ and characterized by special politico-administrative status, virtually unlimited budget, and technocratic discourse and recruitment strategies, according to a research titled “Africa’s Illiberal State Builders”.

What the experience of East Asia and heterodox institutional theories tell us is that institutions are built over time and if relatively weak institutions are juxtaposed with ‘islands of competence’ and are directed towards desirable goals, they can deliver. This in turn helps build better institutions; the ball keeps on rolling.

the Tigers were wild, not always efficient

Until the 1960s Korea and Taiwan, now top world exporters, could only export manufactures of plywood and wigs of human hair because they could not compete against the mighty Japan. Hence, the need for a wilder move: getting the price wrong to kick starting transformation.

Against conventional economics rules, they intervened in the market, punished and rewarded investors, and gambled and protected key domestic firms which might otherwise have gone out of market.  In this process, the most important role of the publicly owned banks was to transfer massive amounts of wealth to an emerging capitalist class much more rapidly than might have happened in a market.

Politics permitting, the bureaucracy attached incentives with performance but key firms were protected at any cost. For instance, in the 1990s a Korean shipbuilder failed to deliver its first built ships on time that forced buyers to cancel their contracts. But the state helped it expand and formed a merchant marine company, which then bought its own ships. The government also introduced a decree that ordered all oil exported to Korea to be carried by Korean vessels which kept the ship kept. Such import substitution policies and investments laid down the foundation for export.

Mutatis mutandis, the rising wage in Japan in the 1960s meant that foreign firms fled, seeking cheaper labor in Japan’s backyard. To attract these escapees, East Asian countries created ‘export processing zones’ and provided various incentives such as importing all their inputs duty free so long as they exported all their output.

These are not the stories of export markets stirring private entrepreneurs along free trade lines. Nor are they the stories of efficient allocation of resources.  As aptly captured by Alice Amsden, “these are more complicated stories of the developmental state at work, from building export processing zones to keeping an infant shipbuilder afloat.” The overall result was shockingly impressive.

If 1960s and 70s were the golden times for the Newly Industrialized Countries (NICs), this is Ethiopia’s. From the vibrant domestic textile and leather sector to the newly coming Turkish and Chinese conglomerates, Ethiopia is turning into a huge textile and leather factory. With its 2000 engineers and 13, 000 well-disciplined workers across 72 factories, the army owned Metal and Engineering Corporation (METEC) is serving as springboard to industrial transformation. From investing on human capital to building roads, railways and mega dams, Ethiopia is laying down the necessary infrastructures needed for massive transformation.

 

This transformation is obviously not free from corruption, nor always efficient. Korea and Taiwan were corrupt. Even in Japan, bad loans amounted to one third of the GDP. For George Friedman, “China is Japan on steroids. It is not only an Asian state that values social relations above economic discipline but a communist state that allocates money politically and manipulates economic data”.

The bottom line is that developmental states, to use Peter Evans’ words, “may not be immune to rent seeking or to using some of the social surplus for the ends of incumbents and their friends but on balance, the consequences of their actions promote rather than impeding transformation”.

Quo Vadis Ethiopia?

What a consistent interpretation of the East Asian experience tells us is that a developmental state is not ‘an omnipotent and omniscient leviathan’ that always gets what it wants. It is rather a state constructed over time and the process of building such a state is messy, sometimes unpleasant, and episodes of failure and crises are inevitable.

Amidst all these, the whole concept of developmental statism boils down to what the renowned Malawian professor Thandika Mkandawire calls an Ideology-Structure Nexus: “a state whose ideological underpinning is ‘developmentalist’ and that seriously attempts to deploy its administrative and political resources to the task of economic development”.  Proxies such as tax efforts and public expenditure patterns can be used to measure such seriousness. I don’t think a government that is criticized for heavy public expenditure and taxing everything that we consume, can be credibly suspected of lack of this seriousness.

Moreover, the main factor behind developmentalist ideology has been nationalism, inducing nations to seek to catchup.  With their nationalist rhetoric and visions of prosperity, leaders of late industrializers inspired their people to sacrifice and save. Independence, nationalism, and economic development were all in the air, in the newspapers, and in people’s minds. It is not a mere coincidence that mottos such as Ethiopian Renaissance and the need to catch up dominated the developmental discourse.

Mkanadawire stresses these ideological underpinnings for it is these that give the rationale for some of the policies and give legitimacy to the otherwise unpalatable sacrifices, not only because they serve as the opium of the masses for the sacrifices that would have been impossible otherwise but also could knit key social actors together. Having noticed how the Great Ethiopian Renaissance Dam (GERD) served as the opium of the poor and has united Ethiopians, it doesn’t take much to realize the role of this ideological underpinning. Indeed, without GERD’s patriotic appeal, the current level of saving rate (17% of GDP from just 6% three years ago) would have been unthinkable.

I am not saying everything is working fine. But there are more reasons to be cheerful than to be doomsday prophets. In fact, if it is of any hope to naysayers, it is important to mention that in the 1960s Nobel Prize economist Gunnar Myrdal termed the Asian state a ‘Soft State’ that had neither the administrative capacity nor the political wherewithal to push through any developmental project. With all the empirical evidences at hand, history was merciless towards the Nobel Laureate, “and his timing couldn’t have been worse: the continent was just beginning the most rapid period of sustained growth seen anywhere in the world at any time”!

In the same vein, Ben Schneider studied the Brazilian state in the late1980s and concluded it was dysfunctional and correspondingly inept in its developmental efforts. Had Schneider been right, Brazilians would not have been hosting the 20th World Cup. If Ethiopia’s current leaders manage to keep the ball of development rolling, I bet hosting the 25th world cup is within the realm of the possible.

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