China as a post-socialist developmental state
China as a post-socialist developmental state
Abstract and Keywords
This chapter explains China's contemporary development trajectory. It examines the main features of the post-socialist developmental state (PSDS), as one which fuses the two intellectual streams, that of the concept of the developmental state and that of post-socialist transformation. It is argued that China has become a genus of the PSDS model and that this model provides an explanation for the institutional and policy choices of the state leadership during the time of systemic transformation. The concept of post-socialist developmental state is believed to be a normative model, with transferable lessons for underdeveloped countries in systemic transition. For the post-socialist states it is seen as the logical consequence of transformation, which was not employed due to international pressure. For other underdeveloped countries it is offered as a general developmental guidance, valid particularly now when neo-liberalism has been discredited and the criticism of global capitalism is mounting, and there is indeed some space to be less doctrinaire in an attempt to accelerate development. The chapter starts with the examination of the PSDS features. It then continues with the explanation of China's development as a genus of the PSDS model. Finally it examines the model's broader applicability.
The post-socialist developmental state
In Chapters One, Three and Four, we discussed the developmental state. We now turn our focus to its post-socialist version. The post-socialist developmental state (PSDS) model is a type of developmental state (DS) model within the frames of contemporary post-socialist transformation. It fuses the two intellectual streams of the developmental state concept and post-socialist transformation (PST). Its basic features are similar to those in the DS model adjusted by the PST process and different international conditions, as compared to historical DS cases. There can be various genera of the PSDS model, as each country would have its own variation of institutional features and policy solutions, and China’s development trajectory represents one of those genera. The PSDS model brings into the discussion on the DS model two important elements: first, it debates its broader than usual applicability, extending it to a very particular group of countries in systemic transformation; and, second, it confronts the model with a different international conditionality than that experienced during the high-growth period of historical developmental states.
In addition to guiding the development trajectory by many means characteristic of the classical DS model, as examined earlier, the post-socialist developmental state has the task of systemic transformation. Consequently, the role of the state, in addition to actively supporting and enabling an effective development trajectory (which has somewhat been lost in the process of post-socialist transformation due to political and economic-doctrinarian reasons), also includes presiding over economic liberalisation, market institutionalisation and microeconomic restructuring. The PSDS should be characterised by selective, and perhaps cautious, economic liberalisation, as so-called ‘shock therapy’ has produced extensive economic contraction in the post-socialist world and subsequently significantly impaired developmental dynamics. The economic-systemic reorganisation creates two unfavourable conditions: first, the state’s attention is captured (p.228) by systemic transformation and development policies are usually neglected, as was the case in the majority of post-socialist states: and, second, the process leaves the economy in interim vulnerability due to the dissolving of old institutions and the creating of new ones. This ‘transformational vulnerability’ negatively affects the state’s ability to maintain a stable, favourable environment for development. Within the process of systemic reformulation, the mechanism of state command or central planning needs to be replaced by indicative guiding planning rather than dismantled. The old economic bureaucracy needs to be restructured along DS lines. The paramount developmental agency not only takes up the task of coordinating overall development-related efforts, but is also responsible for designing and implementing systemic reforms and preventing developmental dynamics from being affected by transformational vulnerability. In the process of industrial development, a post-socialist developmental state should partly use the advantages of historical experiences of heavy and chemical industry (HCI) development. The PSDS initially employs the state-owned enterprises (SOEs) as the state’s partner in the state–business alliance, as neither indigenous development of the private sector nor post-socialist privatisation offer at first adequate privately owned resources.
In short, the PSDS model is presented with additional tasks as compared with the historical DS model, as follows:
• A task of transformation of the systemic arrangements and of state interventionist mechanisms. The new institutions and laws allow a broader scope of economic activities by non-state-owned actors and facilitate the partial withdrawal of the state from directly controlling those economic activities. They redefine the state’s role in guiding development.
• A task of counteracting the ‘transformational vulnerability’ connected to systemic reformulation and a lack of institutions, which creates an institutional and legal vacuum (Blanchard and Kremer, 1997). The DS model could be focused on development, whereas the PSDS model needs to address the issue of the systemically unstable economic environment. This can be achieved via maintaining a firm control over the reforms (a ‘strong in capacity’, interventionist state), by a gradual mode of transformation (as the shock therapy would weaken the state’s ability to act) and by protectionist measures motivated by economic nationalism.
• A task of ensuring a capable partner for the state in the state–business alliance. The DS experiences suggest that this partner ought to represent a private sector. However, what seems to be (p.229) more important in the DS context is that it is a partner who can be effectively influenced. The post-socialist experiences suggest that it is difficult to extract such a partner from the private sector as discussed later.
• A task of reorganisation of the industrial sector. Unlike pre-DS countries, socialist states were extensively industrialised, and at the point of transformation, possessed a large industrial sector, dominated by heavy industry. The PSDS policy of industrial development would thus need to involve the restructuring of socialist industry to remain important for national development and to fit the frames of the post-socialist developmental state.
As far as the contemporary conditionality is concerned, the PSDS task of nurturing development is both easier and more difficult. There are essentially two groups of factors that need to be considered currently, and could have been ignored in the past. First, the global economic order is more intrusive. Consequently, a sophistication of trade and financial sector-related policies is necessary, as custom tariffs, quotas and arbitrary export–import link mechanisms, which were readily available for historical DS cases, may not be at the state’s disposal contemporarily due to globalisation processes. A post-socialist developmental state needs to use its remaining domestic policies, such as fiscal policies and entry procedures, among other things, to encourage and to deter economic activities, and is required to increasingly negotiate its obligations and privileges in international forums. The second group of factors encompasses broad issues related to environmental pollution, climate change and the scarcity of energy and other resources. They constitute an integral part of any contemporary developmental model, and are believed to have an increasingly negative impact on the Chinese development trajectory. Environmental issues and climate change need to be taken into consideration as they affect the quality and pace of developmental changes. In the PSDS model, the imperative to consider environmental degradation as a threat to the development trajectory could specifically result in: the development of environment protection-related policies, regulations and mechanisms, as well as effective policies of adaptation and mitigation; the incorporation of environmental considerations into the strategy of sectoral development; and the development of a low-carbon and low-pollutant economy in general, through the reorganisation of the energy sector, transportation sector and industrial production, in order to gradually increase the share of green growth. However, the positive effects of globalisation are that a contemporary post-socialist developmental state has easier access to (p.230) knowledge, that is, information and technologies. It seems, therefore, much easier to increase the quality of human capital as compared with the historical DS cases.
The constraints of the PSDS model are similar to those of the DS model, as discussed in Chapter One, meaning that in order to retain PSDS status, three sets of endogenous conditions must not occur extensively, that is, there is no broad departure from the DS institutional environment and policies, the pace of development continues to be relatively high, and the states in question are not as developed as so-called Western countries. Naturally, the PSDS countries must be recruited from formerly socialist states. Consequently, they must be effectively undergoing the process of systemic transformation from a state-command economy to a market economy. However, the completion of this process does not need to mean the termination of the PSDS model. A post-socialist economy remains post-socialist after the PST process has been completed. Perhaps a highly developed post-socialist state can still be a PSDS if it became a transformative state (see Weiss, 2000).
The PSDS model is largely in opposition to some general guidelines of economic conduct broadly advocated by affluent members of the so-called international community, such as limiting the role of the state and extensively liberalising national economies. Despite the failure of this neo-liberal economic doctrine, as illustrated not only by the growing disparities in Latin American countries in the 1990s and meagre developmental results of post-socialist states, but also by the 2008/09 global economic crisis, the terms associated with the DS and thus PSDS model in relation to state economic policies, such as ‘economic nationalism’, ‘interventionism’ and especially ‘protectionism’ (an instrument of economic nationalism), still seem to have a pejorative meaning. This is not due to the evident superiority of one set of policies and regulations over another, but due to the intense worldwide propaganda that poorly disguises the economic interests of the most affluent participants of international economic relations.
China and the post-socialist developmental state model
China’s mode of post-socialist development has a number of similarities with the historical developmental states, as examined in this book, and may be perceived as an attempt to apply the provisions of neo-Listian political economy to the contemporary conditionality of systemic reformulation and to a new set of internal and external institutional features and processes. Although many aspects of China’s development (p.231) trajectory hardly seem a surprise, as it would be expected that the Chinese authorities would draw some lessons from neighbouring patterns of, indeed, very successful development, if we consider that China is undergoing a process of post-socialist transformation, which the historical developmental states did not, then its reform path and thus development trajectory seem highly unordinary when compared with other post-socialist cases. Indeed, many directions of China’s transformation and development trajectory have been determined by the fact that China is following a type of DS model. This model can be described as a post-socialist developmental state model as it is based on the classical institutional and policy solutions of the DS model in the conditionality of post-socialist transformation. As has been analysed earlier, there is a plethora of policy and institutional choices that one may classify as determined by DS provisions.
As far as political-systemic reforms are concerned, China, as opposed to most Central and Eastern European (CEE) and some former Soviet Union (FSU) countries, did not undergo a process of democratisation. Instead, it chose to maintain a type of authoritarianism. This choice was motivated, among other things, by the Chinese Communist Party’s desire to retain political control of the state. A legal prohibition of political contestation seemed to be the easiest solution. In the DS context, this was closer to the Taiwanese and the Korean cases than the Japanese case. The Japanese pattern would perhaps be difficult to establish in post-socialist China. The Japanese soft authoritarian institutions were not only required to preside over economic modernisation and development, but also used to shield the development trajectory from the democratically elected political elite’s potential short-termist populism (see White, 1998), this populism being so prevalent in the newly established post-socialist democracies.
Naturally, political reformulation without liberalisation is hardly exceptional among post-socialist states. Many former Soviet republics have continued undemocratic practices. However, China’s authoritarianism exhibits features of neo-authoritarianism or, as described by Woo-Cumings (1999) and Fewsmith (2008a), new authoritarianism, which advocates a strong, undemocratic state to guide the developmental advancements of a country. Contrary to many FSU countries, Chinese authorities effectively sought developmental legitimacy to stay in power. This indeed seems a rarity in the post-socialist world, but is nevertheless a rule among DS cases. The developmental and modernisation obsession among China’s ruling elite during the process of systemic transformation has been clearly visible. Whereas in CEE, the motive of gaining political freedoms and (p.232) establishing democracy prevailed, in the PRC, it was the acceleration of socio-economic development that justified reforms and opening up (see Deng, 1994; Jiang, 2010).
Retaining an authoritarian state was also aimed at creating a strong and capable state, following what White (1998) called a pessimistic view that authoritarianism is better suited for fast development in a developing country. Despite the purported erosion of state capacity (see Wang, 1997; Wang and Hu, 2001; Shirk, 2007), the authorities have attempted to strengthen their power and control (Howell, 1998) over society and the business sector. It is visible in their practice of forging links and relations with and influencing the newly emerging social structures (Dickson, 2001) that are the result of systemic changes. In the DS context, these links are intended to maintain an uneven relationship with other state actors (Leftwich, 2000), for example, through the policy of suppressing the labour force (Solinger, 2006), common in the historical DS cases (Gallagher, 2005). Indeed, the position of the working class is believed to have deteriorated during the PST process (He, 2000), partly due to ideological reformulation (see Solinger, 2003). At the same time, although the authoritarian regime is believed to be relatively autonomous and insulated despite a clamour of pressure, studies show that it strives for embeddedness through social dialogue (PP, 2009, 2010) to create some form of Evans’s (1995) DS-style embedded autonomy, as examined in Chapter Three. This ‘keeping at bay’ of the various societal structures emerging during post-socialist transformation and attempting to effectively control societal interaction, in a way expected of the nominally communist regime, is accompanied by a gradual extension of negotiation and consultation channels with society and business, via experiments with rural democracy (O’Brien and Li, 2000), public soliciting of new laws (PP, 2009) and an increased consideration of public opinion (eg communicated through the Internet). This is because the Chinese authorities are searching for their own pattern of embedded autonomy (Evans, 1995) with a subordinate society (Leftwich, 2000).
As far as the economic aspects of the process of transformation are concerned, China’s lack of approval of the Washington Consensus contrasts with many CEE and FSU countries, which at different stages of their transitions, followed its provisions. The Consensus was in dramatic opposition to the regulations prevailing and policies followed in the East Asian development model. The Chinese authorities chose a proven regional option rather than a theoretical framework with little evidence of success, despite the fact that it was often argued that the acceleration of economic growth required radical changes and rapid (p.233) liberalisation and China was believed to be implementing the policy of ‘growth at all costs’. Naturally, the political rationale for incremental changes was to maintain stability and control. Nevertheless, this is hardly a gradual pace of reforms, which indicates the affinity of the Chinese development trajectory with the DS model. Rather, it is the reform selectivity, focused on maintaining a tight grip over economic freedom in certain sectors of the national economy, partly via access barriers and investment limitations (see the Catalogue), and on establishing a strong domestic business base through market-distortive mechanisms. From a theoretical perspective, a strong domestic sector does not have to be an indispensable element of successful development. In fact, to enhance the competitiveness of their national economies, many post-socialist countries chose to partly liquidate their inefficient domestic industrial sectors or hand them over to foreign, so-called strategic, investors (Poznanski, 2000), who would provide know-how and raise the level of capitalisation. This policy was in line with many neo-liberal recommendations (Sachs, 1993, 1994). Despite suffering from common socialist countries’ maladies of ineffective industries, China opted for a different variant of improvements and focused on the state-supervised strengthening of its domestic business base and state-controlled restructuring of companies. The process required time, resources and selective opening up, rather than broad and swift economic liberalisation, as it would be largely against so-called market forces. Theoretically, it was a more difficult and lengthier road to follow. However, it was a choice dictated by the DS logic as it would allow for the business sector to be retained in domestic hands.
China’s post-socialist marketisation has also featured DS institutionalisation. In addition to establishing institutions characteristic of capitalist economies (OECD, 2009a), the reform focused on creating economic bureaucracy with an influential pilot agency to preside over economic modernisation. The powers of the National Development and Reform Commission (NDRC) almost equal those of the Korean Economic Planning Board (EPB) and far exceed those of the Japanese Ministry of International Trade and Industry (MITI). Moreover, a new coordinating body supervised by the head of state is being created. None of the CEEFSU countries structured their administrations to include such a prominent developmental agency, either due to the perception that economic planning is a relic of the past, or because the authorities would not search for developmental legitimacy and would secure their claim to power with other means. The two largest post-socialist economies of CEEFSU, Russia and Poland, lacked what could be described as a powerful economic bureaucracy and, suffice (p.234) it to say, they did not seem to make any effort to create one. In the case of Poland, there was a ministry responsible for the privatisation of state assets known as the Ministry for Ownership Transformation (Ministerstwo Przekształceń Własnościowych), but there was no Ministry for Development. As far as central planning is concerned, the Chinese political elite saw it not only as compensating for economic liberalisation (Lau and Qian, 2000), but also as the DS-style ‘plan-rational’ to guide development (see Woo-Cumings, 1999). China did not relinquish extensive state interventionism, and state withdrawal from the economy was rather limited compared with many CEE states. In fact, during the PST period, it searched for new means and instruments of intervention to control various entities and processes. In the case of post-socialist Poland, state intervention and therefore also central planning were rapidly replaced by market forces (Kolodko, 1999a, 2001a); in the case of Russia, it was even without basic market institutionalisation at first.
State interventionism is common within the continental Western Europe capitalist model. The differences between classical European interventionism and DS interventionism were discussed in Chapter One: to developmentally catch up with developed nations (the DS model); to secure/maintain societal cohesion in the process of development (the Western European model). Chinese interventionism is much closer to the DS type in terms of general ideology. Despite usual official propaganda, it is not about social cohesion and the elevation of the less affluent parts of society – as proven by rapidly growing income disparities and the institutional discrimination of the less affluent rural part of society and the industrial working class – but about guiding the general process of socio-economic development.
Extensive state involvement in economic affairs has resulted in rampant corruption. Its intensity increased during the PST process (White, 1996; Kwong, 1997). Corruption is often rightly blamed for the developmental incapacity of ruling elites. More odd is that China’s authorities do not pay sufficient attention to the problem, despite official propaganda. The reason being that in the DS model, corruption did not extensively affect the developmental trajectory due to it often being growth-promoting, as it would divert the resources to more effective economic entities (Bramall, 2009a). Although this does not need to be the current case in China, its real impact is to some extent questionable. Moreover, corruption serves some DS purposes, such as the deterrence of unwanted foreign economic agents and activities.
As far as the paramount state economic ideology is concerned, Levi-Faur (1997) distinguished three principal schools of political economy, (p.235) namely, economic socialism, economic liberalism and economic nationalism. By employing this simplistic division, we can observe the difference between China and most of the other post-socialist countries. As a result of post-socialist transformation, China has replaced economic socialism with economic nationalism, as opposed to the economic liberalism preferred by most post-socialist states. Although a lack of full marketisation in a number of CEEFSU countries, as presented in reports of the European Bank for Reconstruction and Development (EBRD, 2001, 2005, 2008), may suggest that some countries have still not fully embraced economic liberalism as their main state ideology – and after over 20 years of transformation, may see it as unnecessary, hinting towards economic nationalism as a preferred philosophy in an increasingly interdependent and volatile world – China’s economic nationalism has shown distinctive features of the DS model, not merely in the state’s ability to mobilise the nation behind common developmental goals, but also in the state’s ability to protect its domestic market. It is visible in: prohibitive procurement practices demanding, among other things, local content; discriminatory use of labour and competition laws aimed at targeting foreign entities; and arbitrary decisions related to economic activities, guided by ambiguous regulations of local and state authorities. Moreover, China’s DS-style nationalism has not only been prominent in the economic sphere, but concerns a broader policy area of national economy, foreign affairs and security (Hughes, 2006). Security issues, in perhaps a more pronounced manner, were especially important in the context of East Asian nationalism (Cumings, 1984; Camilleri, 2000), although they do play a prominent role in contemporary China as well.
As far as China’s development policies are concerned, it can plausibly be argued that they are to a great extent similar to the classical DS development policies and deviate from ordinary post-socialist policies. Rural policies in post-socialist China included a distribution of land to farmers rather than its restitution, as was the case in most CEE countries (Johanssen, 2001). Naturally, restitution would probably mean a partial return to feudal relations or at least to the rich peasant economy of the early 1950s (Bramall, 2009a). However, the CCP-controlled regime could have abandoned this policy and maintained the large commune units established in the late 1950s. It would be economically justifiable if only appropriate managerial changes and market institutionalisation took place in rural areas in the process of abandoning state command. For example, Poland’s fragmented agrarian production structure, continuously dominated by smallholders, is rightly blamed for its ineffectiveness and the generating of social problems (p.236) (see Borzutzky and Kranidis, 2005) and contrasts with states such as the Czech Republic, where large units remained mostly intact. At the same time, the revisionist pressure present in most CEE countries that led to restitution was not present in China. Moreover, empowering the farmers through land distribution could theoretically weaken the CCP position, whose persistent inadequate attention throughout the state-command period and prioritising of urban development resulted in rather limited support in rural areas. However, by creating family units and a household responsibility system, Deng Xiaoping addressed two important issues:first, it enabled a rapid rise in the volume of production, as China was experiencing food shortages; and, second, it nevertheless empowered farmers and created conditions for more effective wealth generation, bolstering rural support for the new economic policies. Increasing the volume of production and gaining support for further policies were very much the targets of the South Korean and Taiwanese land reforms (see Cumings, 1984; Wade, 1990; Alesina and Rodrik, 1994; Jeon, 1995; Doner et al, 2005). By fragmenting arable land, the Chinese authorities did not perhaps choose the optimal strategy for rural development. However, rural development was not of paramount importance, despite official propaganda. Rural policies served the purpose defined within the frames of the DS model and were to play an auxiliary role in industrial development. The ‘targeting’ of the rural economy seems only to be a relatively recent phenomenon.
The policy of industrial development was a permanent feature of socialist states (Brada, 1984). However, this policy was extensively neglected in the CEEFSU region during post-socialist transformation, at least at the beginning of transition, as it was believed that the best industrial policy is no industrial policy (Husan, 1997). The subsequent attempts to revive industrial policies after the dismantling of the planning bureaucracy and extensive external economic liberalisation were not effective. In Poland, as in other countries, they took the form of industrial restructuring, aimed at gradual advancements in the level of sophistication of the industrial product. In China, the policy of industrial development has not been abandoned during the post-socialist transformation. On the contrary, it has been characterised by all the features presented by Chang (1999b, 2009) in his analysis of East Asian industrial policy (see Chapter Four). The natural tendency of socialist states for import-substitution industrialisation (ISI) (despite the existence of Council for Mutual Economic Assistance83) has been supplemented by export-oriented industrialisation (EOI) in the (p.237) post-socialist era, and industrial development was tuned into the DS pattern of gradual change in industrial targeting from labour-intensive to capital- and technology-intensive sectors. However, in order to follow what is often considered to be a classical developmental path, post-socialist China initially reversed its targeting and went from capital-intensive HCI to labour-intensive light industry development. This is not to say that it did not begin HCI restructuring, as it did. It is to stress that at the beginning of transformation, light industry development became the focus, despite the socialist heritage of having a more developed HCI sector. Naughton (2007) argues that it was due to the fact that the socialist development of HCI created an illusion of skipping the light industry development period. Nevertheless, China could have focused its efforts on the industrial restructuring of existing HCI, broadly considered to be more advanced, where it must have gained expertise and experience, and then continued to climb the developmental ladder. The reasons for light industry development are clear and convincing, as discussed in Chapter Four. Among them was also the desire to increase China’s participation in international trade. The fastest way was perhaps by the rapid expansion of technologically not-intensive branches, which required a large number of workers with limited skills. As much as in other DS countries, China’s industrial selection – the (supposedly developmentally reversed) choice of light industry, the (time-consuming) industrial restructuring of HCI and the gradual focusing on those industries with advanced technological content – was determined by the PRC’s willingness to more extensively engage in international trade, as China’s growth was intended to be export-led (Woo, 1999). Empirical evidence from the analyses of developmental states suggests it was export that was mostly responsible for securing dynamic economic growth in an underdeveloped country whose domestic purchasing power would not allow for internal consumption to be the initial driving force for socio-economic development. Naturally, other post-socialist states also considered international trade an important developmental factor; however, they never utilised the East Asian experiences to the extent that China chose to (Kokko, 2002). Export-led economic growth is an exception among post-socialist countries and the rule in developmental states.
Indeed, in its industrial targeting, China was guided not merely by gradual technological improvements in its production content, which is a common developmental pattern, but also by the content’s international market receptiveness, which is more affiliated with the DS-style export-driven pattern of growth. Chinese authorities chose to develop industrial sectors previously not associated with China. In (p.238) order to achieve this, they created an ambitious national research and development (R&D) programme accompanied by intensive inward technology transfer (Linden, 2004) characterised by an ambiguous attitude towards intellectual property rights (IPR) (PP, 2007).
The plethora of instruments used by the state in order to channel capital, technological and skill resources to the targeted sectors, partly illustrated in the closely monitored foreign investment policy, is overwhelming. Foreign technologies and expertise have been attracted, on one hand, by potential business opportunities and, on the other, by special investment conditions. Moreover, various aspects of monetary policy have not been aimed at macroeconomic stabilisation, but have focused on developmental issues. As in other DS cases and as opposed to most post-socialist CEE countries, the banking sector has not become an independent element of the market economy. The People’s Bank of China (PBC) and the state-owned policy banks are developmental tools, and their decisions are based on the government’s necessities to advance its agenda. China utilises DS-style indirect (rate manipulations, rebates and exemptions) and direct subsidies (direct payments) to targeted sectors and enterprises. Fiscal (tax) subsidies are also important instruments (see Wong et al, 1995).
It is often believed that in the contemporary international conditionality characterised by the process of globalisation, engagement in international trade is usually necessary for developmental advancements. Therefore, export promotion became a natural element of external economic activities. Most post-socialist countries have specialised agencies to assist exporters to gain access to new markets. In this respect, DS-style export promotion is perhaps not unusual. What is distinctive, however, is the domestic machinery to make exports more competitive by navigating financial system-related incentives. Chinese authorities not only resorted to political means of development cooperation with less developed countries and negotiated trade agreements with potentially important partners, but also employed comprehensive state regulatory machinery. An artificial exchange rate of the undervalued RMB is maintained to make exports more internationally competitive (Mehrotra and Sanchez-Fung, 2010; Yao et al, 2011). Export-oriented production is supported by various palettes of subsidies, as examined earlier. Moreover, what has been a distinctive feature in DS trade policy is import discrimination. China has used a number of tariff (eg import custom taxes) and non-tariff, including bureaucratic, barriers to selectively prevent imports. In order to comply with World Trade Organization (WTO) regulations, it developed a range of additional instruments to prevent its domestic (p.239) market’s penetration by foreign products and economic entities, for example, via very strict and ambiguous standardisation procedures (PP, 2009) or a deliberate ignoring of its own IPR regulations. It constructed a Catalogue of industries where a foreign presence is either limited or entirely forbidden due to ambiguous national security reasons.
However, not all of post-socialist China’s solutions are perceived to be in line with DS arrangements and not all DS recipes are believed to have been implemented. For example, the authorities chose to rely on SOEs as partners for the state in state-led industrialisation. It contradicts the idea of the DS state–business alliance, which is based on public–private partnership. In both Japan and Korea, private companies were crucial in the development of various industries. China apparently chose to ignore this fact, at least as far as targeted capital-intensive industries are concerned.
Indeed, a developmental state would choose the most effective agents for implementation of its development strategy. In many aspects, it would be private companies. On average, they are more efficient in delivering results, as they have more clearly defined targets, that is, maximisation of profit, and more clearly defined beneficiaries, that is, the stakeholders. The SOEs are usually implicated in ambiguous ‘extracurricular’ activities and social targets, which may inhibit their effectiveness. Naturally, private companies in the DS environment were not free from these kinds of pressures. This was the case in both Japan and Korea. Nevertheless, the logical choice for post-socialist states would be to make sure that there is a supply of private companies. In the post-socialist conditionality, this could be achieved in two ways: first, via the privatisation of state companies. Socialist economies were characterised as hosting a number of relatively large SOEs. The second method would be to create an institutional environment for the growth of the indigenous private sector. The second option is, however, a time-consuming process, with ambiguous and often unpredictable results. Therefore, privatisation would be an easier and, thus perhaps, preferable option.
Let us here, however, present the main features of the privatisation outcomes of the two largest CEEFSU economies, namely, Russia and Poland. In the post-socialist world, privatisation was considered to be an important element of transformation (Dehesa, 1991; Kornai, 1992) and its implementation was, indeed, encouraged to be as fast as possible (Sachs, 1993; Williamson, cited in Kolodko, 1999a). In both cases, this process was rapid and extensive (Jermakowicz et al, 1994; Baka, 2004), gained some support in their respective societies, but ended up with dubious results (Poznanski, 2000; Klein, 2007). (p.240) The post-socialist privatisation process in the two countries had two distinguishing features, leading to the same conclusion in the context of our DS-related analysis. In Poland, it resulted in most of the sizable companies being transferred to foreign owners (Poznanski, 2000), usually in the same sector, as seen in a number of industries, from alcoholic beverages (Pernod Ricard bought the most famous Polish vodka trademark Wyborowa) to defence (PZL Swidnik and PZL Mielec, the helicopter manufacturers, were sold to the Italian–British company AgustaWestland and the US firm Sikorsky Aircraft Corporation, respectively), with all the possible sectors in-between. In Russia, the privatisation process did not result in the handover to foreign stakeholders. Instead, as a result of the appropriation of state assets, a caste of oligarchs was created, who commenced large transfers of their financial assets to more secure locations abroad in anticipation of the instability of the country’s political system and, as a consequence, insecurity in terms of their economic status and wealth possession. To avoid the repossession of their wealth acquired in dubious conditions, they chose to invest much of their assets in other countries and not in Russia. The process of privatisation in both countries resulted in the effective elimination of potential economic agents for DS-style state-led developmental efforts. In the case of Poland, the picture is clear: companies are usually foreign-owned, and the handful of those that are domestically owned would not be able to carry on the task as their number fell short of even the relatively limited number of Korean chaebols. In Russia, the appropriation of state assets, often illicit in form, was not accompanied by regulations that would prevent the flight of capital and other assets, and the state was not able to effectively coerce the business sector into supporting the developmental endeavour until very recently.84
The outcomes of the Polish and Russian ownership reforms illustrate the rationality of China’s choice to keep SOEs and to nominate them to be the main economic agents, if it were to follow the DS-patterned development trajectory during post-socialist transformation. The Polish failure to create a domestically controlled large business sector, in addition to the SOEs being, for obvious reasons, easier to manoeuvre into the state’s policies, suggests that the PRC’s reliance on the state sector may not have been a choice to regret entirely. Naturally, the Chinese authorities commencing transformation in the late 1970s could (p.241) not have known Poland’s and Russia’s experiences of the 1990s. Initially due to ideological constraints, and later perhaps having observed the developmental logic of East Asian states and the rather ambiguous results of early privatisation efforts in CEEFSU, Chinese authorities chose to keep some important companies within the state’s proximity and influence. The easiest way was to maintain state ownership. The history of the Rheinish capitalism of Western continental Europe (Hall and Soskice, 2001; Bramall, 2009b) was dotted with SOEs effectively operating as vital economic agents. Chang (2009) points to the Korean POSCO and the Brazilian Emraer not only as successful SOEs, but also as enabling the states to enter new sectors of world production and to become important players. Keeping 150 or so large SOEs as actors of the developmental endeavour meant that the Chinese authorities followed rather than ignored DS recommendations. Priority was given to the stability of the state–business alliance and to the effectiveness of control over the supposed effectiveness of performance.
The fact, however, that in the case of China, the main companies in the targeted industries are state-owned does not mean that China has not followed more directly certain Japanese and Korean patterns. On the contrary, in the 1990s and during the first decade of the 21st century, there was a certain level of intensification of mergers among the SOEs, as discussed in Chapter Two. After the 15th CCP Congress (in 1997), the Chinese authorities, using the economy of scale argument, started implementing a policy of grouping companies and creating large conglomerates, similar in size to chaebols and keiretsu, as the continuation of zhuādà fàngxiâo (Gallagher, 2005; Breslin, 2007). The earlier-mentioned Shenhua, Baoshan, Sinopec and PetroChina are examples of the policy of creating a range of very large companies, with asset capacity, which would allow them to pull in sufficient resources to compete on the international scene dominated by multinational corporations (MNCs). In the case of Japan and Korea, it was the large companies who were predominantly responsible for implementing the state’s industrial production plans.85 This is also currently the case in China.
The reliance on state firms does not need to be a permanent feature. Initially, it seemed to be the logical choice, even from the DS perceptive. The state needed to secure a business partner for the state–business alliance who was most reliable and easy to manoeuvre into the developmental agenda. Japan and Korea had strong private (p.242) business sectors prior to the DS-proper period; China possessed large state-owned firms prior to systemic transformation. However, China will perhaps eventually rely on private companies in its DS-style development process. Accepting the business sector into the CCP (as a result of the concept of ‘three represents’), and one of its most prominent members, the business tycoon Liang Wengen, into its governing bodies, is a sign of creating a Korean model-inspired close relationship between private business and the state. The mechanism of DS-style state–business alliance based on public–private partnership is thus under construction.
Another issue concerns growing disparities, as a result of which China is already positioned among the most unequal societies. It is a common opinion that developmental state policies eventually led to a higher degree of social cohesion. However, the DS model has never been about social cohesion. In fact, Korea experienced relatively large income disparities during the DS-proper period. Perkins (1994) rightly argues that some positive effects in this respect were side effects rather than deliberate targets. With that in mind, the Chinese authorities chose to ignore social necessities and focus, as developmental states did, on overall development. This was despite the initial strategies of ‘not leaving any social group behind’.
What has clearly failed to form within the post-socialist Chinese state is the DS-style centralist character. Naturally, China is not a federalist state, despite some claims that it might eventually become one (see Cao et al, 1999; Chung, 2006), and the central party-state is still the most influential power centre. The government has been keen on tightening its grip on provinces, for example, by using Zhu Rongji’s fiscal re-centralisation and the mechanism of rotating the leading state cadres. However, China is a very large, populous, diverse and underdeveloped country. Therefore, the centralism present in small Korea and Taiwan, or in medium-sized Japan, is perhaps unattainable. This directly affects China’s ability to be a strong capable state. From the DS perspective, this can be seen as one of the main weaknesses in the PRC following some kind of DS development pattern.
In sum, the choices of the Chinese authorities as far as institutionalisation and policies during post-socialist transformation are concerned have been, to a significant degree, determined by the concept of the developmental state. This is why China has maintained a type of authoritarian political system, but nevertheless: sought developmental legitimacy and is seeking to create some sort of embedded autonomy; in the process of reforms, implemented selective liberalisation; let development policies, guided by economic nationalism, take priority (p.243) over systemic changes; has been economically rather than socially oriented in its state interventionism, partly sustained by an influential central economic bureaucracy; was growth-obsessed, with this growth being driven by exports; focused on building a strong domestic business sector and a weak labour class; developed a large palette of policy mechanisms to support exports and discriminate against imports; and chose a strategy of industrial targeting with gradual technological upgrades and international market opportunities in mind. This is why it ignored corruption and growing disparities. This is also why in search of business partners for the DS state–business alliance, it prioritised effectiveness of control over type of ownership. Naturally, due to various internal and external factors, some policies and institutional arrangements differ from those in historical developmental states. For example, international trade-related policies, as well as market access regulations, had to be redefined due to the changes in international conditions. In this respect, China has managed to adapt to a new environment, as did Japan in the late 1960s after partial liberalisation, without abandoning the paramount philosophy of state developmental intervention.
Following the analysis of DS-determined choices in China’s post-socialist development trajectory, one may argue that, in general, the PSDS explains many aspects of China’s political reformulation, its focus on economic growth, its genus of market economy and its pattern of international engagement. More specifically:
• The method of retaining power by a nominal communist party. The CCP could follow other autocratic regimes, that is, increase or reformulate political repression, enrich itself, and ignore the economy. In the short term, it would be easier than implementing reforms of an ambiguous target and gradually empowering the nation with economic and other means.
• The prioritisation of long-term economic growth and economic modernisation for China to become a developed and modern economy, rather than focusing on systemic reforms to become a liberal market economy.
• Extensive state involvement in the economy to preside over economic modernisation and industrial development, despite proceeding with post-socialist economic liberalisation.
• The method of interaction with the global economy by incremental and selective opening up aimed at strengthening the domestic business sector and developing an export-oriented regime, by nurturing new, international-market receptive industries, in addition (p.244) to relying on historical advantages related to socialist industrial development.
There seems to be a plethora of scholarly literature on virtually all elements of China’s development and transformation, providing analyses of why and how the state leadership chose particular ways to retain power and to develop the country. Naturally, there has been a number of ways of doing this, and although today China’s choice is often considered to have been a developmentally better option than that taken by many other post-socialist states, China could have followed a very different route than it did in its systemic transformation and thus post-socialist development trajectory, namely, fast democratisation, extensive liberalisation and opening up. At the beginning of the transformation, it was not clear that post-socialist economies would plummet into extensive recession. On the contrary, it was believed that they would thrive after a perhaps short period of depression. China’s policy and institutional selection, as well as mode of transformation, however, was the result of embracing the PSDS model.
However, the reform and policy agenda presented after the 3rd plenum of the 18th CCP Congress (December 2013) is often interpreted as a clear signal towards the state’s willingness to advance and accelerate economic liberalisation. The CCP leadership has been explicit about making the market mechanism more prominent, if not decisive, in the systemic institutionalisation. International commentators, partly provoked by Chinese state propaganda, seem to believe that the unveiled reforms might be as bold as those of the historical 3rd plenum of the 11th CCP Congress. Consequently, perhaps the idea of a post-socialist developmental state has finally been rejected? This question is particularly important at a time when the international community is intensifying its criticism of China’s growth model and when the discussion on global and national systemic arrangements prompted by the 2008/09 economic crisis is gaining in impetus.
Heiduk (2012) asserts that although China came out of the crisis less harmed than many other countries, its economy was, nevertheless, hit through three channels: a decrease in export demand; a decline in foreign direct investment (FDI); and a loss of productivity due to the underutilisation of the capital stock, revealing certain shortcomings in its institutional design. The existence of these shortcomings is often claimed to be caused by the fact that, as opposed to many (p.245) PST countries, in China, development policies took priority over systemic transformation; hence, the Xi–Li administration’s call for the acceleration of marketisation. Although international and Chinese economists and policymakers may not have a common understanding as to favourable future systemic arrangements for the PRC, they seem to be in agreement as to the necessary short-term steps that the country needs to take to advance development. China needs to change its growth model as the current pattern has become unsustainable and obsolete. This assertion may not necessarily be derived from China’s de-acceleration of economic growth – in 2012 and 2013, China’s pace of gross domestic product (GDP) growth slowed down to below 8% – as it is an expected phenomenon after many years of hyperdynamics. Rather, it is based on the examination of the economic growth’s quality and developmental effects. The necessity to change the model of growth has already been anticipated in the 12th Five-Year Plan (2011–15). In his detailed analysis of the document, In der Heiden (2012) points to four main areas of improvement necessary for the change in the growth model: increasing domestic consumption; creating an advanced service sector; promoting the competitiveness of manufacturing business in general and developing emerging strategic industries in particular; and advancing green development. Ding (2012) emphasises that the change in the growth model lies at the centre of the 12th Five-Year Plan. He believes that China’s ‘new magic triangle’ consists of mutually reinforcing phenomena that will lead to further developmental advancements: social security, growth and openness. In its recent report entitled Urban China: Towards Efficient, Inclusive, and Sustainable Urbanization, the World Bank (2014), together with the Development Research Center of the PRC’s State Council, emphasises that the process of urbanisation will continue to be central to developmental advancements as ‘the great urban transformation’ (see Hsing, 2010) continues. The report calls for a new model of urbanisation and names several areas necessary of reform, namely: land management; the hukou system; financial discipline for local governments; the sustainability of urban finances; urban planning and design; the management of environmental pressures; and governance at the local level.
Not surprisingly, environmental degradation and climate change surface as the main issues that need to be addressed in China’s new growth model. Lin and Swanson (2010) underline that:
the environmental challenges confronting the PRC are diverse and growing, and include the following: (p.246) land degradation; water scarcity and pollution; air pollution; inadequate urban environmental infrastructure; contamination of the rural environment; increasing frequency and intensity of environmental accidents; loss of biodiversity; and global climate change.
Cai and Du (2008) clearly link China’s environmental problems to its growth pattern (see also Song and Woo, 2008; Lin and Swanson, 2010). As a result of China’s industrialisation during the socialist and post-socialist period, as well as due to the prioritisation of growth over sustainable development in the contemporary conditions of environmental degradation, the pace and, most importantly, the quality of economic growth have already diminished and are likely to diminish even more in the near future. The developmental losses will be in the form of a slowdown in economic growth, either due to lost opportunities or decreased returns, as well as in the form of a decrease in the quality of economic growth, that is to say, the lack of the growth’s translation into socio-economic development. As far as lost opportunities are concerned, environmental degradation will prevent the farming of certain lands that could have been or, indeed, were farmed in the past, due to soil, air and water pollution, as well as due to weather-related anomalies altering natural conditions. Certain types of industries that rely on pure water, pure air and so on will not be developed in specific areas, despite, for example, a growing local necessity for additional employment. The same applies to certain services that could have been established and provided, but due to environmental and environmentally related social and economic reasons, will not. Lost opportunities to develop industries, agriculture and services will have a direct negative impact on GDP growth, the labour market and additional consumption opportunities.86 Environmental degradation will diminish the returns from various economic activities. This process is related to the decreasing productivity of land, as well as of people’s labour. Pollution will affect the population’s health, which will impact the effectiveness and the amount of work they can provide. Radical environmental anomalies may shorten farming periods. The new weather conditions will prompt outbreaks of diseases, and soil pollution will decrease the quality of farming and husbandry lands. Those phenomena are already extensively (p.247) affecting China’s development and the authorities are increasingly paying more attention to the problems.
All this hints to the fact that development strategy changes are not only necessary, but also imminent. In no way, however, do these changes seem to be affecting PSDS principles. Economic liberalisation and market institutionalisation do not need to be against the PSDS model. Although, internationally, China is forced to operate in a more liberal environment than Japan and Korea did during their DS-proper period and has thus faced strong pressures for economic liberalisation, domestically, China’s regulated market economy has still some space to limit interventionism to maintain its DS character. Moreover, Japan and Korea gradually liberalised their national economies in the process of shifting priorities determined by developmental advancements. Consequently, the announced plans for economic liberalisation and market institutionalisation do not suggest a departure from the DS. China will not become a North American-fashioned or even European-styled liberal economy in the close future. In fact, many decisions seem to be in line with PSDS expectations. This is because the problems that need to be solved can only be dealt with by the state.
Therefore, the head of the state is consolidating and strengthening his powers to supervise the reforms (using a small leading group) and to increase his grip on domestic security by chairing the national security commission. In particular,the small leading group could be an important structure to coordinate the multilayered process of economic transformation. It is intended to ensure more direct control over policies, partly as it was in the Korean DS during the Park Chung Hee era. At the same time, with a mass of publicity and a general perception as a reformer, Xi Jinping is building the support of the nation, thirsty for further modernisation efforts. This support will also increase in rural areas due to the promise of the extension of the mechanisms of consultation and of radical changes in the sphere of ownership of land, to a large degree aimed at empowering rural inhabitants. On one side, the state is again portrayed as a strong and capable state and, on the other, it is making advancements in building embedded autonomy. The intended ownership of land reforms in rural areas addresses another neglected sphere during China’s transformation, which is important in the DS context, namely, property rights. It has usually been argued that the genus of the DS model would be difficult to establish without properly defined property rights. Although this does not need to be a correct assertion, the promised changes will undoubtedly be in the right direction as far as the DS perspective is concerned.
(p.248) Although there are indications of a possibility for less discriminatory treatment of the private business sector, both domestic and foreign, it is explicit that SOEs will remain the main economic actors in strategic industrial sectors. The CCP reaffirms that the state will continue to rely on the by-default trustworthy partner in the state–business alliance. At the same time, increasing support for the private sector comes from the conviction that its auxiliary role is crucial, as well as from the fact that the large SOEs are becoming increasingly powerful, and that this alleged power, also of a political nature, needs to be curbed.
The current reform plan is perceived as an escape forward, as the current set of growth engines is becoming obsolete and further restructuring is necessary. This is inevitable in all fast-developing economies. Despite the proposed economic liberalisation and market institutionalisation, the changes and plans indicate the continuation of DS rules within the policy and institutional framework of the PSDS model. For example, the provisions of the 12th Five-Year Plan are clearly in line with PSDS recommendations: technological upgrading and new industrial targeting. The strengthening of the central power centre, at the same time as empowering neglected rural residents, and more direct supervision of the reforms, as well as further economic liberalisation without degrading the role of SOEs, if realised, will all indicate that the PSDS is there to stay, at least for some time.
Therefore, one can assume that the future development trajectory will most likely be characterised by the Chinese authorities’ continuing favouring of market-distortive mechanisms and intervention, especially visible in state development policies. They will search for new, perhaps more subtle, mechanisms for the state to preside over development in order to adapt to global changes in the international economic order and to the dynamically changing domestic situation, as has been visible with the reform and the policy agenda after the 3rd plenum of the 18th CCP Congress. The policy of industrial development will push for more technological advancements (as indicated in the 12th Five Year Plan), whereas the policy for export support will gradually be weakened during the attempt to divert the focus towards domestic consumption. It is likely that Chinese legislators will accelerate economic liberalisation and, in this respect, more effectively adopt certain norms believed to be the domain of developed, Western nations, as the authorities are already adamant that they favour more market forces. It will be hailed as a great success of the international community, but, in reality, it will be dictated by internal conditions and necessity, and international pressure would have played an important but rather auxiliary role. For example, domestic market penetration in various sensitive sectors might (p.249) be permitted once they are fully controlled by Chinese companies and those companies reach the capital, technological and managerial level that will enable them to effectively deter MNCs. Intellectual property rights will be embraced once Chinese companies begin to lose more than they gain without protection. Finally, political liberalisation will lead to a liberal democracy. This was the case in Korea and Taiwan. An increasingly affluent and educated Chinese society will eventually demand non-material goods. It is sometimes claimed that contrary to official propaganda, the Chinese authorities accept the inevitability of political liberalisation and are believed to be preparing themselves and the nation. Perhaps the next generation of leaders – rumour has it that they might be Hu Chunhua (party secretary of Guangdong province) and Sun Zhengcai (party secretary in Chongqing) – will be the last state leaders chosen without nationwide democratic elections.
However, the PSDS model not only serves the purpose of explaining China’s post-socialist development trajectory. In general, it offers ‘transferable lessons’ – to borrow the phrase from Evans (1998) – as to how to maintain an effective development trajectory during the post-socialist transformation and contemporary international conditionality. Despite neo-liberal propaganda, it can be argued that the PSDS was perhaps more desired and a more natural choice for the post-socialist states than was the neo-liberal economic model guided by the provisions of the Washington Consensus. This is visible in the analysis of China’s development trajectory during the systemic transformation throughout this book. The argument can be summarised in three points.
First, due to the insufficient developmental results in socialist times, the post-socialist states of CEEFSU hoped for the acceleration of economic growth as a result of systemic transformation. In fact, it is often claimed that in CEE and in the Soviet Union, socialism collapsed rather than was dismantled (Kolodko, 1999a) due to limited developmental achievements. The DS model, on which the PSDS has been built, was the most successful developmental option in the history of the second half of the 20th century, whereas the neo-liberal model did not bring any recognisable acceleration of development in countries in which it was applied.
Second, socialist states prior to the transformation already possessed a number of institutional features necessary for the implementation of a genus of the DS model. The state-command system positioned the state as the paramount power centre to design and implement developmental plans. Socialist countries were usually unitary, centralised states. They had experience in and institutional mechanisms for central planning. Naturally, the DS plan-rational varies significantly from socialist state (p.250) command. Nevertheless, the socialist experiences would have been invaluable in creating a new planning mechanism. Socialist states possessed an extensive planning bureaucracy, which could have been transformed into the economic bureaucracy of the DS model. The bureaucrats lacked the knowledge of market and market mechanisms, but possessed essential knowledge of designing centralist developmental strategies. By definition, socialist countries were interventionist and their elites decided which industries to develop and what and how much to produce. In this respect, the difference between the DS model and socialism was in the agents of the developmental endeavour and the institutional mechanisms used for industrial development. However, the concept of the state guiding industrial development via some sort of planning was closely related. The alternative to the PSDS was the neo-liberal model, where central planning and state interventionism were abandoned, the centralised state was decentralised, and the state bureaucracy was effectively dismantled. As a result, the central state was weakened and retreated from the economy. The shock therapy recommended by the proponents of the Washington Consensus would favour building new institutions ‘from scratch’ and ignoring the positive institutional legacy of socialism. As empirical experiences illustrate, this pattern of development was initially counterproductive, whereas in the long term, it brought limited positive effects.
Third, the socialist legacy would create some favourable conditions for the process of DS industrial development. Socialist states were relatively well industrialised and their societies were well educated. Industrialisation was key to DS-style development and human capital quality was paramount for Japanese post-Second World War advancements, whereas a lack of an adequate level of qualified cadres forced Korea to pay much more attention to nurturing a local educational base. Japan and Korea were also characterised by large enterprises as the agents for industrial development. Socialist states possessed a number of large SOEs, who, upon adequate restructuring, could become important keiretsu- and chaebol-style partners for the PSDS state–business alliance. Finally, socialist states had a domestically owned banking sector, considered a necessary condition for the DS financial policy of support for industrial development and international trade, as this banking sector role would go beyond that reserved in traditional Western capitalism. The neo-liberal model offered open market competition to the socialist companies, who had never operated in the market conditionality and would have to compete against experienced MNCs, leading, at best, to the shifting of industrial decision-making abroad and, at worst, to the dismantling of the industrial base. It also (p.251) offered privatisation of the banking sector as a necessary restructuring activity, which would inevitably lead to eliminating banks as DS-style developmental agents.
Consequently, the Chinese authorities selected a more ‘natural’ institutional and policy choice of systemic transformation to facilitate the post-socialist development trajectory, despite it being unordinary. Moreover, by having adopted the PSDS model, they provided us with useful insight into possible future scenarios of China’s transformation and development trajectory.
Institutional arrangements enabling state-guided development, policy solutions focusing on industrial development and a selective engagement with the global economy and state ideology defending national economic interests, as analysed in this book, can all, in one way or another, be considered as applicable to a broader audience. The main message, however, is that the role of the state (ie the ruling political elite and the administrative bureaucracy) in the process of socio-economic development of underdeveloped countries and countries in systemic reformulation is of paramount importance, and no imaginary market forces are able to effectively preside over developmental advancements. This message is particularly important at a time when the discussion on the favourable national and global institutional arrangements after the global economic crisis is broadening and intensifying, and the critics of contemporary capitalism are becoming louder.
Naturally, most of the recent economic and systemic crisis-related literature deals with the causes and consequences of the global financial crisis of 2008/09 (see, eg, Cooper, 2008; Bliss and Kaufman, 2010; Foster and McChesney, 2012). A financial crisis is, it seems, an inevitable element of the socio-economic landscape of the world. Only in the last two decades have there been several, for example, the 1997 financial crisis, which extensively affected the economies of East Asia (see Goldstein, 1998; Haggard, 2000; Klein and Shabbir, 2006), but nevertheless, as explained in Chapter One, hardly dislocated the principles of the DS model. However, the recent financial crisis in some industrial nations, which became a global economic crisis (see Stiglitz, 2010), dubbed the Great Recession (Chacko et al, 2011; Kolb, 2011), has been particularly painful, to the extent that it has often been compared with the Great Depression of 1930. Various aspects and different stages of this crisis have been given attention in numerous analyses. They often point to the ‘innovativeness’ of the actors of the financial markets (Albo et al, 2010), and, indeed, the financial alchemy (Nesvetailova, 2010), which triggered the crisis. It is the insufficiencies in the US model, the cradle of the crisis, which are given special attention (see (p.252) Bonner and Wiggin, 2006; Shiller, 2008; Foster and Magdoff, 2009; Kolb, 2011). In its extensive 650-page report entitled ‘Wall Street and the Financial Crisis:The Anatomy of a Financial Collapse’ (Levin and Coburn, 2011), the US Senate cites regulatory failures as one of the reasons for the global economic crisis. A lack of regulation explicitly and inadequate state intervention implicitly are blamed for the havoc. Therefore, The Stiglitz Report (Stiglitz, 2010) suggests the restoration of the state as the appropriate regulator.
A bulk of contemporary scholarly literature also deals with the issue of adjustment of the growth models and the reformulation of the global institutional order to mitigate climate change and environmental degradation (see Owen and Hanley, 2004; Lopez and Toman, 2006; Giddens, 2009; Bulkeley and Newell, 2010). As Speth (2008, p 234) puts it, ‘the seriousness of looming environmental threats is slowly sinking in, driven largely by climate issues but also informed by the outpouring of serious books and articles pointing out that various breakdowns and collapses are actually possible’. Moreover, some analyses emphasise the unfairness of globalisation and its dangerous side effects (see Stiglitz, 2004; Krugman, 2000; Steingart, 2008; Panic, 2011), such as growing disparities and thus marginalisation and increasing vulnerability, particularly of the less developed countries’ economies.
The critics of the financial market’s lack of constraints, of the development models with inadequate attention to environmental degradation and climate change, and of globalisation as a whole, call for the overhaul of national systems and the global order. The world has not become flat and neo-liberalism did not lead to the end of history. The crisis of the capitalist systemic arrangements is perhaps more evident than ever. The Stiglitz Report (Stiglitz, 2010, p 1) emphasises that ‘the crisis has exposed fundamental problems, not only in national regulatory systems affecting finance, competition and corporate governance, but also in the international institutions and arrangements created to ensure financial and economic stability’ (see also Joyce, 2013). Many call for more explicit state interventionism. Scott (2011, p 611) states that:
the essential lesson of the last 30 years is that self-regulation of capitalism is an ideological fig leaf that hides a superficial understanding of a system that requires the coercive powers of government to restrain the competitive urges of many of its leading players.
Griffith-Jones et al (2010) declare that it is time for ‘a visible hand’ in the market. Giddens (2009) calls outright for the return of some sort (p.253) of planning – the necessity especially evident, according to him, in the failures in the area of the environmental protection: ‘There has now to be a return to greater state interventionism, a conclusion that is reinforced by the failure of deregulation’ (Giddens, 2009, p 96). Needless to say, the calls for state involvement, more prominent planning and amending the failures of deregulation hint at institutional and systemic solutions consistent with the DS and the PSDS recommendations. So, too, do Chang’s (2010) suggestions on how to rebuild the world economy. He compares capitalism to a machine that needs careful regulation and steering to operate properly. He underlines that the ‘government needs to become bigger and more active’ (Chang, 2010, p 337), especially in developing countries, which are particularly disadvantaged as far as the effects of economic crises are concerned (see also Stiglitz, 2010).
The process of rejection of neo-liberalism is accompanied by an increase in the interest in a variation of the DS arrangements in other continents than Asia. It is interesting to see how the DS model becomes more prominent in Africa. The continent is seen as the new high-growth region, with challenges similar to those faced earlier by East Asian economies, mostly related to a large incidence of poverty. It is, then, by all means natural that the discussion on adequate development models therein also includes that which brought the biggest successes in the second half of the 20th century. The idea of constructing an African developmental state has floated around at least since the 1990s (Mkandawire, 2001) and is, indeed, believed to have peaked in the 21st century (Mbabazi and Taylor, 2005). Due to its authoritarian political arrangements and high growth, Ethiopia is often mentioned as a possible example (Desta, no date; Kefale, 2011). However, as many countries on the continent have been undergoing democratisation processes, the African developmental state has been connected with the constructing of a democratic developmental state (Edigheji, 2005; Olayode, 2005). Botswana and Mauritius have often been seen as good examples. Sometimes, Uganda and South Africa are also mentioned.
However, as far as the PSDS model is concerned, it may be useful for some post-socialist economies, especially in times of the increasing prominence of post-socialist states (see Bolesta, 2013b; Heiduk, 2013; Piatkowski, 2013), but not for all. Undoubtedly, the new member states of the European Union (EU) and the countries in the process of accession negotiations have already selected the mode that they would like to follow in terms of development. On the one hand, these states are limited in their competences by the imposition of EU regulations and, in the case of accession negotiations, by EU guidelines. On the other hand, the inevitable consequence of the multilayered (p.254) convergence with the entire relatively wealthy bloc of the EU, partly via cohesion policy, immensely contributes to their developmental dynamics. Some provisions of the PSDS model might thus be useful for those states whose development trajectory depends predominantly on the institutional and policy choices made by their political elite, as they are not part of or in proximity to the EU. Undoubtedly, countries that still seem to be in the process of post-socialist transformation and are in need of development lie in the Caucasus region and in Central Asia. Russia is also a good candidate, where some PSDS-style efforts have recently taken place. Moreover, for Cuba and North Korea, who did not commit to the process of systemic transformation, some PSDS provisions might, indeed, be useful to prevent extensive economic contraction and to build fundamentals for long-term sustainable development, if the respective leaderships decide to reform the state-command system. Vietnam and Laos are already successfully implementing PSDS provisions. Mongolia can still become a PSDS in view of its recent policy reformulation and more intense state involvement in some elements of the national economy.87 So can Myanmar. Finally, most of the PSDS features, those related to the DS model, can perhaps serve as guidelines of conduct to be considered by any developing country – as mentioned earlier in relation to the possible emergence of the African developmental states – who would like to embark on an effective developmental catching-up trajectory and is committed to withstanding the pressure of the affluent entities within the contemporary international economic and political order. This pressure may be weakening due to the intensified criticism of the current mode of world capitalism. So there is hope …
(83) Which China was not a member of.
(84) By no means am I trying to say that today’s Russian government has a clear development strategy that it imposes on its business sector. I merely state the fact that it is perhaps creating conditions for an effective DS-style state–business relationship.
(85) As opposed to Taiwan, where the development trajectory was mostly facilitated by small and medium enterprises and MNCs’ subcontractors.
(86) In a way, prompting a spiral of events as such additional consumption could facilitate the development of more industries and services.
(87) Personal observations from consultations with the governmental officials in Ulan Bator, 21–29 August 2011.