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State Failure in Developing Countries and Strategies of Institutional Reform

Author: M Khan
Date: 2002
Size: 41 pages (58 KB)

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Summary

What is the role of the state in developing economies? This question is fundamental to the debate over the failure of states in transition. New research by London University looks at the arguments and suggests that a shift in the focus of reform is needed as well as political reorganisation in poorly performing economies.

The analysis of state failure has been driven by two views of what the state does. The ‘service delivery’ view says the state’s role is to provide law and order, stable property rights, key public goods and welfare redistributions. In failing to provide these, the state contributes to economic under-performance, poverty and a series of governance failures. These need to be addressed to focus the state on its core service-delivery tasks. The second view puts the state in the context of ‘social transformation’: the dramatic transition developing countries are going through as traditional production systems collapse and a capitalist economy emerges. These states have intervened in property rights and devised rent-management systems to accelerate the capitalist transition and the acquisition of new technologies. State failure, in this ‘view’, has been driven by the lack of institutional capacities and their incompatibility with pre-existing distributions of power.

An examination of the econometric data and historical evidence questions whether the governance reforms suggested by the first view can improve growth. There is at least a need for caution in the claims that are being made for governance reforms of the types that follow from the service-delivery model. For example:

• There is no historical evidence that these reforms were a precondition for growth, or that they can be meaningfully implemented in transformation economies.
• There is some support for this reform agenda in developing countries but competing factions have also found anti-corruption slogans useful in factional political conflicts.
• There is little evidence that new productive coalitions have formed around these reforms.
• There is a real danger that disillusionment will grow further if no significant economic progress is achieved.
• Multilateral agencies may not be spending public resources well in pushing reforms based on questionable evidence linking them to growth improvements.

In contrast, the ‘transformation state’ perspective identifies critical state capacities for managing and regulating rents and for organising changes in property rights systems. If growth and sustained poverty reduction are the objectives, these capacities have to become the focus of institutional and political reform.

• The challenge is to suggest feasible reforms that account for the particularities of each country.
• While political restructuring is outside the remit of multilateral agencies, they can focus on simple regulatory capacities.
• Attention needs to be given to basic state capacities in areas such as technology acquisition and attracting multinationals.
• Institutional capacity building has to proceed in parallel with restructuring political and organisational power.
• International agencies should transfer knowledge, offer support in enhancing dynamic transformation capacities and encourage the construction of productive coalitions to support reforms.
• Further research is needed about how the distribution and disposition of organisational power has affected different transformation strategies and the use of this information to suggest feasible institutional and political reform.

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Source: Khan, M., 2002, 'State Failure in Developing Countries and Strategies of Institutional Reform', Draft of Paper for World Bank ABCDE Conference, Oslo, 24-26th June.
Author: School of Oriental and African Studies (SOAS), http://www.soas.ac.uk