ABSTRACT

The state is important in both initiating and sustaining economic growth. This finding is contrary to neo-classical economics,which argues economicgrowth is best promoted by reducing the economic role of the state through liberalisation and privatisation. Alternative works have highlighted very specific developmental roles for the state, subsidising firms (Amsden 1989) and overseeing a high-debtbased corporate sector (Wade and Veneroso 1998). The necessary role of the state is much broader and any analysis of the role of the state needs to incorporate finance, production/learning and institutions. Likewise the rigid uniformity of Neo-classical policy recommendations – liberalise the financial sector and leave allocation of financial resources to themarket – is fundamentallymistaken. Awide range of strategies exists to mobilise an economic surplus and transfer it to those able to invest it productively; and similarly there are a variety of ways and means through which institutions can mediate the resulting conflict. In a developing country the mobilisation and especially the allocation of the economic surplus, is a profoundly political question. Without a guiding role for the state, there is no particular reason why the economic surplus should find its way into the hands of an emerging capitalist class. The state also has an important role in production, to promote learning and upgrading. Without a strong role for the state a firm/industry/developing country can seek to maintain international competitiveness in a self-destructive manner, through low wages, long hours and intensified labour. Such a pattern of growth is more vulnerable to international competition and likely to be ultimately unsustainable. Competitiveness promoted through learning, upgrading, highwages and high productivity is more sustainable and also superior from a welfare perspective. The state has a crucial role in promoting the latter, ‘high road’ of development.