Topic 2

The role of the state in

the process of national
development 1
 The state in development
• The state is at the center of political systems
everywhere

• It is pivotal to the political, social and economic

future of countries

• It determines the direction and pace of devt.

2
 State (cont.)
• Central focus - understand comparatively the
variety of political and socio-economic
transformations on the African continent

• Abject poverty, high unemployment rates, high

crimes rates, political instability, low investment
rates, endemic corruption etc. 3
 State (cont.)
• The African state is not equipped to respond to
the needs of the people

• A weak state cannot spearhead the process of

national devt.

• The same applies to a predatory state

4
 State (cont.)
• The state in developing countries has to define its
role and position in the devt. process

i. Devt. agent role

ii. As an entrepreneur

iii. As quaranteer of individual and group rights

iv. As controller/regulator
5
 State (cont.)
• The extent to which the state is involved in these
multiple roles is a major determinant of the
nature and content of devt. policies

• The manner in which the roles are played

determines and explains the devtal trajectory of
the country 6
 State (cont.)
• The devt. philosophy and strategies of the state are
usually contained in the NDPs

• The state sets out broad national principles to guide the

devt. process

• E.g. in Botswana, we have four national principles of

democracy, devt., self-reliance and unity 7
 The state in the context of
liberalization

• What is liberalization? - opening up the economy

to facilitate global prodn and trade (i.e. removal
of tariffs, prohibitive laws and taxes, etc.)

• Removing all impediments to globalization with

respect to the operations of global markets

8
 What does liberalization entail?

• Diminishing role of the state in the devt. process

• A move away from the welfare state

• Allowing growth and dominance of the private

sector – spearhead the process of national devt.

9
 What does liberalization entail?

• Reforming govt. to create a business friendly

environment

• Roll back the state – establish a minimalist state

10
11
 Basic Assumptions
1. Free trade, market competition and the laws of
demand and supply will adequately/sufficiently
regulate the market and this will lead to:

• Accelerated economic growth

• Creation of employment opportunities

• Generation of wealth and decent income

12
 Basic Assumptions (cont.)
2. Competition will ensure efficiency by producers -
comparative advantages for producers (nations)

3. Investments resulting from globalization - high living

standards in poor countries (jobs, income, choice of
quality goods etc.)

4. National economies will benefit from export oriented

growth 13
 Administratively, it would lead to

• Reduced structures, responsibilities and number

of public servants (i.e. reducing the bureau)

• Alignment of performance standards within the

public service to those of private sector (i.e. apply
generic principles of management)

14
 Administratively (cont.)

• Transforming focus of public servants from

citizen image to customer/client image

• Increasing the cost of providing goods and

services to citizens as a result of removal of
subsidies
15
 Administratively (cont.)
• Public service institutions to be business entities
(i.e. think of cost recovery measures)

• Allowing and enhancing efficient and effective

devt. based on a market economy (i.e. customer
based production)

16
 Administratively (cont.)
• Policy direction and implementation of devt.
programmes to be guided by values and
principles consistent with econ. growth and devt.
of a liberal nature

• Economic relations in the market to define the

role and extent of political involvement
17
 Administratively (cont.)

• National govts and public services to

subordinate their roles to the market economy
anchored on Efficiency, Effectiveness & Economy

• Public servants to be less guided by principles of

equity, justice, equality, fairness and welfarism

18
 Advantages of liberalization

• Production efficiencies – more efficient use of

resources which will lead to higher productivity

• Increased production resulting from comparative

advantage

19
 Advantages (cont.)
• Benefit to consumers through availability of a
variety of goods and services supplied at lower
prices

• Export based economies attract more foreign

exchange/gains
20
 Advantages (cont.)
• Employment opportunities will be created within
emerging export industries (though initial loses
will be realized in import industries)

• The expectation is that these loses will eventually

be absorbed in the new industries

21
 Advantages (cont.)

• Econ. growth will lead to increased real incomes

which will in turn lead to high living standards

22
 Disadvantages
• Structural unemployment – often in large
numbers (job losses and retrenchments)

• Vulnerability of national economies as they are

more dependent on global markets and trends

23
 Disadvantages (cont.)
• Dominance and distortion of international
markets by those with surplus products (i.e.
dumping through very low prices)

• Closed markets for new industries due to

dominance of Trans National Companies/Multi
National Companies) 24
 Disadvantages (cont.)
• Often results in pollution & other environmental
problems - over utilization of natural resources

• Pressure to protect local companies especially

during global financial crises or economic
recessions

25
26
 Origins of public enterprises

• State determines the pace and direction of devt.

• It determines the type of entities that should be

established

• Capitalist, communist, welfarism etc.

27
 Origins of public enterprises

• Traditionally, govt. itself managed most service delivery

• Toward the end of the 20th century, govt. relied

increasingly on non-govtal partners to do its work

• Done through processes that relied less on authority for

control

28
 Origins of public enterprises

• PEs came into existence as a result of the

expanding scope of public admin.

• Emergence of welfare states after WWII and the

increasing devtal initiative undertaken by govt.
across the world led to the system of public
enterprises 29
 Origins of public enterprises

• Weak private sector

• Lack of infrastructure

• Low levels of social and human devt.

• Unfavourable social, economic and financial

environment 30
 Origins of public enterprises

• Govt. provides goods and services to citizens

through the means of a state owned enterprise
system

• The system incorporates the characteristics of

both public and private enterprises
31
 Origins of public enterprises

• Govt. operates in the areas which are of basic

and/or strategic importance

• Those areas may require huge investments

beyond the scope of private enterprises

32
 Origins of public enterprises

• The state owned enterprises play an important

political, economic and devtal role

• Employment creation - Soviet Union - PEs

employed 85% of the workforce

33
 Origins of public enterprises

• PEs also have their roots in the colonial past of

their countries

• Influence of the former colonial masters

• Different countries have different experiences

34
 Origins of public enterprises

• Developing countries - private enterprise and

managerial competence was inadequate and
couldn’t spearhead industrialization

• Ideological reasons – belief that substantially all

econ. functions of production and distribution
should be managed in the public sector
35
 Origins of public enterprises

• Some countries believed that certain kinds of

economic activity, such as the exploitation of
natural resources, should be in the hands of the
govt.

• The need for major structural changes which very

few private investors could be able to respond to
adequately

36
 Origins of public enterprises

• Developing nations set up PEs in basic and heavy

industries and for the provision of public goods

• The resource requirements were very large and

private profitability was not high - at least in the
short-run
37
 Origins of public enterprises

• PEs, then, existed primarily to represent a govt's

interventionist objectives in an economy

• Govts. created these agencies hoping that they

will conduct their business activities effectively
and efficiently
38
 Origins of public enterprises

• Spoilt system - political patronage

• Corruption and mismanagement of national

resources

• Managerial and administrative deficiencies –

poor service delivery
39
 Origins of public enterprises

• Political interference and departure from their

mandates

• Duplication of roles and responsibilities –

wastage of national resources

• Burden on govt. – loss making and bail

40
outs
41
 PEs in modern societies
• Separate legal entity – Acts of Parliament

• Owned, controlled & managed by govt.

• Public accountability

• Compromised autonomy & independence

42
 PEs in modern societies
• Govts use PEs to guide and command the
economy

• They provide essential services (e.g. housing,

water, electricity, transportation etc.)

• Bring services closer to the people

43
 PEs in modern societies
• Used as a political instrument to maintain
political stability, prevent unrest and provide
employment opportunities for citizens

• They fill the inadequacies of the private sector

44
 PEs in modern societies
• PEs not led by business minded people

• State-owned firms in developing countries tend

to be large in relation to the local market

• Their size and dominant position dampen

competition
45
 PEs in modern societies
• They operate more efficiently when faced with a
competitive market

• The spur of competition pushes firms to develop

their marketing skills, pay close attention to
service, keep up technologically & control costs
46
 Variation of the size of the PEs

• Developing countries have established many PEs

as compared to the developed ones

• Exigencies of national sovereignty, national

independence and national pride – govts played
and continue to play a leading role in the process
of national devt. 47
 Variation (cont.)
• Size and number of PEs influenced by the
ideology and philosophy of the political leaders

• E.g. Socialist-oriented regimes wanted to prevent

a situation whereby wealth is concentrated in the
hands of few individuals
48
 Variation (cont.)
• Political system in place and national priorities of
the leaders

• Issues of social justice - the perceived need to

provide employment opportunities for citizens –
private sector cannot do it alone
49
 Variation (cont.)
• Structure of the economy - protection of
countries against foreign competition

• Shortage of capital and capital markets

• Govt’s control of strategic sectors of the economy

50
 Variation (cont.)
• The need to secure economic independence –
place the econ. resources in the hands of citizens

• Private ownership was viewed as foreign

ownership

51
 Variation (cont.)
• Inadequate supply of private goods and services
– state plays the role of an entrepreneur

• Use of PEs to implement national devtal plans

• The desire to generate revenue for national devt.

52
 Variation (cont.)
• The state plays a regulatory role in the economy

• Regulatory role played by some PEs (e.g.

BOCRA, BQA, BERA etc.)

53
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