The State's Role in the Development Process

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What should be the state's role in the development process? Why has there been a neoliberal backlash against government involvement in development?

In theory, the role of the state in development should be a small one. Instead of following outmoded socialist central planning policies akin to those of the Eastern bloc in the twentieth century, poor countries should emulate the West and open up its markets to international trade; encourage the development of a vibrant and dynamic private sector; ensure that government spending is kept to a minimum; privatise all manner of inefficient and wasteful state-owned industries and overall, let the free market do its job. At least, that is the theory.

But it may not be that simple. Many historians correctly point out that the West was hardly the epitome of the free market and small government back in the eighteenth and nineteenth centuries when it was first industrialising.[1] If anything, government intervention was the norm for quite a long time. The state played a role in shielding domestic manufacturers from the corrosive effects of trade, which (in their eyes) kick-started the Industrial Revolution in Great Britain; channelling capital to budding industrialists to invent and improve upon new and existing technologies; funding long-range expeditions to faraway lands like India and China to open up trade links, which, in absence of a guaranteed profit, would have turned away private investors; and finally, regulating and standardising all manner of industry as to ensure efficient and organised operation.

However, it takes negligible intellectual effort to simply use the post hoc ergo propter hoc logical fallacy and cherry pick evidence to suit one's world view. The same line of reasoning was used by racists in the 1800s to argue that Western Europe developed because it was made up of whites and Africa stagnated because it was made up of blacks. Such a position is, of course, absolutely ludicrous, and yet the same thought process is used by many who would argue that the state was the main reason that poor countries are now rich. It is one thing to say that the state intervened during the development phase of these countries, but it is quite another to say that its intervention caused such development.

Therefore, historians must pinpoint a single trend within the developed economies that led to the initial...

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...t to the World Bank and IMF for loans, who would only cooperate if these countries implemented painful (but arguably necessary) structural adjustment programs, which were designed to reorganise their economies along more market capitalist lines. Whereas in the fifties and sixties, developing countries were able to exploit the tensions between the US and USSR in order to garner all the financial support they required (Egypt's Nasser was particularly shrewd in this regard[5]), once the Cold War had wound down in the eighties and the Soviets had little money left to 'lend', the only option available was to borrow from the West.


Bernstein, WJ, The birth of plenty: How the prosperity of the modern world was created, McGraw-Hill, New York, 2004.

Chang, H, 'The market, the state and the institutions in economic development' in H Chang (ed.), Rethinking development economics, Anthem Press, London, 2003, pp. 41-60.

Heo, U, & T Roehrig, South Korea since 1980,CambridgeUniversity Press,Cambridge, 2010.

Knox, P, & Agnew, J, The geography of the world economy, 3rd edn, John Wiley & Sons, New York, 1998.

Kissinger, H, Diplomacy,Simon&Schuster,New York, 1994.
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