ABSTRACT
Introduction In recent years, development theory and practice have moved in opposite directions. The theoretical literature has revived market failure arguments from the early 1960s, coming full circle from a market-based approach back to state intervention for attaining industrialization. In contrast to that earlier period, however, this theoretical turn has not led to a change in policy direction, despite the unimpressive results on the economic and social achievements of liberal reforms.1 I will argue in this chapter that the rent-seeking critique of state intervention, first elaborated in the 1970s and 1980s, continues to shape mainstream policy recommendations in two ways. First, it has successfully shifted the focus from markets to states, so that the untested counterfactual that state failure is worse than market failure still holds sway. Second, it has influenced the recent emphasis on state reform. The initial rent-seeking paradigm provided the theoretical basis for a minimalist state.2 However, based on countries’ experiences with economic liberalization, mainstream policy makers now argue that a reformed and strengthened state is required to implement these policies, hence the “secondwave” of reforms following the first wave of liberalization reforms. The second wave of reforms, however, is motivated by an instrumental view of politics and institutions, in which the “right” institutions are those that deliver the “right” policies. Yet, the nature of those policies remains unquestioned. Moreover, an appropriately reformed state is essentially considered to be one whose policy-making apparatus is staffed by enlightened technocrats and limited to non-targeted programs in order to remain insulated from rent-seeking pressures. I will argue that these legacies of the rent-seeking approach have hampered the promotion of industrial policies.
