THE ECONOMIC WEEKLY December 12, 1959

Book Review

Role of the State in Economic Development Hannan Ezekiel

Economic Planting in Underdeveloped Areas: Government and Business by toward S Mason. Fordham University Press, New York. Pages 87. Price $ 2.24.

T H E R E has b e e n much contro­versy about the role of the.

State in economic development. W h i l e one view gives the State an ent i rely subordinate role, the other holds that it must p lay an active and even dominant part in the de­velopmental process. Most of the par t ic ipants in this controversy, to whichever view they might subsc­r ibe, all appear to agree on one mat­ter. A l l of them insist that there is, in absolute terms, an op t ima l re­la t ionship between state and busi­ness. In other words, they a l l in­sist that there is an op t ima l rela­t ionship irrespective of t ime and place, though they of course differ amongst themselves regarding the character of this o p t i m a l relat ion­ship.

A more reasonable approach to this question wou ld make this opt i ­mal relat ionship basically relat ive in character, dependent significant­ly upon the socio-economic condi­tions prevalent in the country con­cerned. This is the view adopted by the author of I he present work , which is based on the Moorhouse l . X . M i l l a r Lectures delivered by h i m at the Fordham Universi ty , New Y o r k ,

Histor ical evidence shows that changes in socio-economic condi­tions have in fact brought about changes in the degree to which the State has undertaken economic functions qui te independently of the at t i tude of the dominant ideology toward this question. One evidence of these changes is to be found in the increasingly impor tan t ro le that government has played in the richer countries of the West i nc lud ing the Uni ted States because of the growth in the number of wants that private enterprise can no longer satisfy.

IN U K AND JAPAN

lt is generally believed, however, that whatever the role played by the Stale in the economies of the advanced countries today, it was pr ivate enterprise that played the c ruc ia l role in b r i n g i n g about their r a p i d economic development at the t ime when these countries were at

a stage of development at which the underdeveloped countries are at pre­sent. Th i s is not. however, quite true. Difficulties arise in determin­ing how far back in the his tory of the advanced countries one must go in order to find situations compar­able to those exist ing in the under­developed countries today. In am case, in many of the advanced coun­tries, the State has p layed a much larger part in p romo t ing develop­ment d u r i n g (lie in i t i a l stages than most people recognise. Except per-haps in Great B r i t a i n , where private enterprise played a large part in the p rov is ion even of social overhead faculties, the State has contr ibuted substantialIy to the development of most advanced countries, not ex­c lud ing the Uni ted Slates. Professor Mason's conclusion is that the rela­tions of government to business at s imi la r stages of development co­ver a very wide spectrum even in countries which can a l l be called capi la l i si .

These differences in governmental-business relationships among coun­tries at s imi la r stages in their de­velopment are. according to Professor Mason, the resultant of many forces, both physical and his tor ical . In Great B r i t a in , private enterprise was so much more able and w i l l i n g to undertake the tasks essential for s t imula t ing the process of economic development p r i m a r i l y because B r i ­ta in was. on the eve of indus t r i a l i ­sation, substantially more developed economical ly than most other coun­tries at tins stage. In Japan, on the other hand, the Japanese Govern­ment played an active role not only in expanding resource ava i lab i l i ty , but also in exercising control over the direct ion of investment. The government 's most important con t r i bu t ion in the area of social over-bead was its attention to education W h i l e not ing these facts. Professor Mason points out that "a recitation .... of the activities of government in the promot ion of economic de­velopment is apt to lead to an undervaluat ion of the cont r ibut ion of pr ivate enterprise to the econo­mic g r o w t h of Japan." Professor

Mason explains that a substantial part of the success of the Japanese Government's active intervent ion in the field of industry is to be a t t r i ­buted lo the fact it came on the scene at a late stage. The activit ies which fostered early industrialisa­t ion in a country l ike Br i t a in could have been successful only in an en­vi ronment relat ively free f r o m gov­ernment cont ro l .

AMERICAN EXPERIENCE

Regarding the Amer ican experi­ence on this question, Professor Mason draws four ma in conclusion*. First . government played a much larger role in early American eco­nomic development than was com­m o n l y supposed un t i l recently or than is commonly assumed in busi­ness circles today. Second, public-act ion was directed much more to expansion than to a l locat ion and management. T h i r d . in i t i a t ive for pub l i c action came in the United Stales to a much greater extent f rom private business interests and local groups. Four th , though the centra) government had at times a national development policv. it has never been a very consistent or persistent policy and few steps were taken to develop the governmental machine-ry. necessary to put a consistent pol i -cy into effect.

Th i s review of his tor ical experi­ence supports Professor Mason's conclusion that the Stale has played widely different roles in the econo­mic development of different coun­tries. In tu rn ing to the posi t ion p reva i l ing in the underdeveloped countries today, however. Professor Mason feels that there are special factors which allot a more significant role to the State than that played by it in the already advanced coun­tries du r ing the corresponding period of their g rowth . This in fact can be considered his ma in thesis. Of course, this thesis i tself is by no means ent i rely new. Quite a number of western economists who swear by private enterprise in their own economies are w i l l i n g to sup­port quite a measure of State ac­t i on in the underdeveloped coun-

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tries. It is the set of arguments which Professor Mason marshals in support of his thesis wh ich makes this vo lume interesting.

DIFFERENCE IN SOURCE OF FUNDS Before analysing this thesis, how­

ever, it should be noted that Pro­fessor Mason appears to be in two minds about what he rea l ly intends to do in the present volume. In his Prefatory Note, he points out that anyone who discusses the ro le of government in economic develop-ment has a choice between either defending a thesis for or against the roles cur ren t ly assumed by govern­ment or describing a si tuation. "The fact that I choose to describe and expla in rather than to judge , " he goes on to say, '"does not mean that I have no views." Professor Mason does have his own views and it is his op in ion "that in much of Southern Asia and the M i d d l e East, governments are impe l l ed by forces largely outside their cont ro l to undertake tasks beyond their com­petence." The discussion in the book s trongly reflects this op in ion of the author and as a result, at least in part, it reads as the defence of a thesis that special factors in the underdeveloped countries of today allot to the State a more significant role than that played by i t in the development of the advanced conn-tries. His exp l ic i t decision to res­t r ic t h imsel f to a description rather than to a judgement has only the effect of making less effective and to some extent less clear his defence of what is obviously his thesis on his impor tan t question.

The m a i n statement of Professor Mason's thesis is set out on pages 14 and 15 and may he summed up as fo l lows:

First , the cur ren t ly underdeveloped countries are in certain c r i t i ca l ways u ibs tant ia l ly behind as compared to the now advanced countries imme­diately p r i o r to their r ap id industr i ­alisation. Yet , many of them have

much stronger governmental ser­vice, and have well-developed trans­po r t and communications systems to­gether w i t h a l i m i t e d economic sector in w h i c h modern techniques, organisat ion and methods of manage­ment are dominant .

Second, these underdeveloped countries are surrounded by coun­tries in an advanced stage of deve­lopment , thus m a k i n g possible the b o r r o w i n g of a h i g h l y product ive technology adapted la rge ly to large-

scale organisation and at the same t ime creating an irresistable pres­sure for development.

T h i r d , in ternat ional migra t ion can no longer funct ion as an instrument for the transfer of technology and organisat ional techniques.

Four th , the impact of the West on the underdeveloped countries du r ing the nineteenth century has produced almost everywhere an ant ipathy to pr ivate enterprise.

F i f t h , government directed deve­lopment in the Soviet Union . China and earl ier in Japan has had a demonstration effect on the peoples of the underdeveloped countries.

F ina l ly , the difference in the sour­ces of funds available fo r deve­lopment favour publ ic as against pr ivate investment. Th i s last factor covers difference both in the domes­tic and the foreign sources of funds for economic development.

'CRITICAL MINIMUM EFFORT' The case for Professor Mason's

thesis as expounded above is sup­ported by h i m by fur ther arguments. The case for government directed development rest in part on the theory of **the b ig push" or " c r i t i ­cal m i n i m u m ef fo r t . ' A spr ing i n ­to sustained growth is further sup­posed to require not only a b ig push but also a careful p l ann ing of ex­panded resource use. A proposi t ion of general app l i cab i l i t y to a l l currently underdeveloped countries is invoked to support the thesis. It is that "whereas the development of the techniques and forms of orga­nisation that characterise an indus­t r i a l economy may wel l have re­qui red a private in i t i a t ive relat ively unfettered by pub l i c controls, the transfer of the developed forms and techniques can be as we l l or better accomplished by government ac t ion/"

It is fa i r to Professor Mason to ment ion that he notes at a num­ber of points the factors which make it necessary to take such a thesis w i t h a measure of caution. He points out for instance that whi le the dr ive for rap id industr ial isat ion impels governments of many of the underdeveloped countries to under­take action on a wide front , they are not necessarily capable of doing so successfully. In fact, as he points out very clearly, many of the underdeveloped countries have not even succeeded in achieving a reasonable measure of law and or­der, wh ich is the essential precondi­

t ion for the achievement of r ap id industr ia l isat ion. W h i l e many of these countries appear, again, to be going in for a substantial amount of planned economic development on the basis of state in i t ia t ive , the extent to which state action i s ac­tua l ly effective is much smaller than plans and policy statements might suggest.

Professor Mason also outlines some of the l imitat ions on the trans­ferabi l i ty thesis which apparently supports the case for dominat ion by the Stale in the process of economic development. He points out that this thesis treats the in t roduct ion of large-scale Western techniques not merely as an important element i n , but as the essence of economic de­velopment. Sel l ing , export ing and product and process adaptation and improvement are important ele­ments in the development process at which the State may lend to be much less successful than it may be in large-scale product ion . Further, whi le the thesis may be at least par­t ia l ly true of some of the under­developed countries, it is hardly true of a l l .

The cr i t ica l feature of the case for state action, however, is the widely prevalent acceptance of the need for state action amongst the people of the underdeveloped countries. This part of the thesis, put baldly, seems to suggest that state action for economic development is desira­ble because the people of the under­developed countries think that it is desirable. The fourth and fifth of the factors in favour of state action listed above amount in substance to an argument along these lines.

CRUCIAL QUESTION NEGLECTED The main cr i t ic ism of the present

work is. however, that it bypasses or at any rate neglects the relat ively more important question of what the nature of government action for economic development should be,

u W h a t is needed." says the au­thor, "is the implementat ion of a strategy of development, a strategy that w i l l lake into account the vari­ous indirect effects of investment inevi tably neglected in the private calculus/* Such a strategy musi necessarily come f rom the state. The question at issue is the relative roles of the state and of private enterprise w i t h i n such a strategv. Professor Mason's re la t ively cursory discus­sion of the state's role in expanding resource ava i l ab i l i ty . con t ro l l ing

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resource a l locat ion and under tak ing resource management does not help to throw l igh t on this crucia l ques­t ion . I t fai ls in par t i cu la r to note that entrepreneurial a b i l i t y must it­self be considered as an impor tant resource for economic develop men I. expansion of which according to one view it should be the d u l y of the state to foster.

Professor Mason's summary of the experience of some of the ad­vanced countries of the w o r l d d u r i n g

their process of development is h i g h l y useful. H i s b r ie f review of economic p l ann ing in South and Southeast Asia w i th reference (to the p rob lem under consideration is i l l u ­mina t ing . The excellent way in which he has disposed of the dog­matic belief in the supremacy of pr ivate enterprise and in the abso­lute character of the o p t i m a l rela­t ionship between the. State and p r i ­vate enterprise is commendable. Even the case for state domina t ion

in the process of economic develop­ment in the cur ren t ly underdeve-loped countries is w e l l set out . But , perhaps p a r t l y because of the indeci­sion about whether he was present­ing a ease or descr ibing a s i tuat ion, he has fa i led to examine the most crucia l issues involved in the basic p rob l em of the relat ionships bet­ween the state and pr ivate enterprise in the economic development of the underdeveloped countries of the w o r l d .