POLITICS OF DEVELOPMENT

Williams et al (2011) Politics and Growth. In: Development Policy Review 29:S1, S29-S55
ASSIGNMENT FOR NEXT WEEK
1. Read (on BB required reading)
- Moore the causes of bad governance


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2014
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What is the research question of the text?
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What is the research question of the text?


How do political processes enable of obstruct growth?
What drives the holders of power to act in ways that generate
sustained growth?
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What is the main argument of the tekst?
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What is the main argument/contribution of
the text?

Clarification/analysis of the connections between politics and
growth using a four-stage framework
Basic conditions for growth

public-private interaction

incentive incentive incentive incentive


Country level factors
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Too much about what policies and institutions are required for growth
Not enough about how these come about.
The how = the politics of growth, being the processes of conflict, negotiation and
co-operation between interest groups in the use, production and distribution of
resources

Political processes shape economic and social outcomes:
- economic efficiency; equity; growth and poverty reduction.
- but also absence of growth, predation, rent-seeking, patronage (particularly in
the context of weakly institutionalised states where politically and economically
powerful groups seek to extract benefits for themselves).

Overcoming these problems and generating sustained growth depends critically on
the nature of political incentives.
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Evidence on the links between politics and
growth
The debate is not settled.
Clear connection over the long run, but correlation not causality
Short run variations in growth performance cannot be explained by governance

Measurement issues (aggregation subjective data outcome measurement not
causal mechanisms) - Causality debates

The evidence points to the fundamental importance of politics in shaping economic
growth, but leaves many questions unanswered. It is important to acknowledge that
there are large gaps in understanding, and the many competing theories cannot be
adequately tested because of shortcomings in data.
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Donor thinking



In spite of the uncertainties in the theoretical and empirical
literature, development agencies have taken an increasingly
normative view of the importance of good governance as a
precondition for economic development
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Donor practice
- OECD/DAC countries institutions are the model
transplanting institutions
- Expansion of good governance agenda and reform overload

Some changes noticeable
- good governance is about good politics political-economy
analysis
- Good enough governance agenda
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How is growth generated?
Economic foundations of growth?

(i) freedom from expropriation; investors need confidence that they will be able to
retain their assets and an adequate share of the proceeds;
(ii) well functioning, competitive, appropriately regulated and internationally open
markets operating in stable macroeconomic conditions; and
(iii) adequate and appropriate investment in public and semi-public goods, in
particular infrastructure, human capital and technology acquisition, that would be
underprovided by the private sector.

But: weight and sequencing problem focus on institutional form instead of
institutional function
And: how do you get these foundations? The three conditions depend on political
processes to build institutionalised relations of trust between different holders of
power, while at the same time establishing checks and balances to counter potential
conflicts of interest.
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Political foundations of growth

Institutionalised relationships between the holders of state power (political and
military) and potential investors are vital because growth depends critically on trust
and constructive interactions.
Each stands to gain from co-operation, but incurs risks in doing so:
- Benefits for politicians: long-term growth generates employment, improved
living standards and government revenues and political finance.
- Risks: investors may use their economic power to capture state mechanisms or
organise violence.
- Benefits investors: sacrificing immediate consumption in favour of longer-term
investment, provision of public goods and an enabling investment climate.
- Risk: expropiation
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Historically, political development and economic development have been mutually
reinforcing:
- politicians started to see that political survival is dependent on growth
- investors came to see their interest in renouncing private violence and seeking
public goods
But: long-term process
If no institutionalised relations of trust:
- politicians will be tempted to resort to creating rents and dispersing patronage to
buy off opponents with the potential to organise violence, and holders of private
capital will seek private advantage through the creation of monopolies,
restrictions on competition, etc.
- This form of co-operation or collusion can be persistent because it serves the
interests of a powerful elite, and can support social stability. But it also presents
important obstacles to growth.
The problem in many developing countries is that they are still at fairly early stages
of state building where institutionalised relationships and checks and balances are
often weak.

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State building and growth transitions
In collapsed states:
immediate challenge: establish or restore government authority
in order to restrain private predation.
Once state control has been established, the challenge is to
organise sufficient countervailing power to prevent the state
from engaging in looting and predation.
This is a particular risk because when conflict ends, whether
through military victory or peace settlement, the individuals and
groups who gain power are often those who have become used
to profiting from predatory activities.
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Western Europe : war tax accountability open access societies (North) are quite
rare: rule-based economic and political competition, and the organisation of a broad
range of interest groups engaging in state-society bargaining: role of middle class
capable of organising politically and with few exit options.

Many contemporary developing countries: little incentive to bargain with their
citizens over tax or anything else due to historical factors (state formation
through colonisation) concentration of political and economic power in the hands
of small elites, relatively unrestrained by organised societal interests.
Weak accountability + weak capacity clientelism : a limited access social order
(North): the political system is used to restrict access to economic opportunities
and the resulting rents are allocated to stabilise the political system and limit
violence.

BUT also role international environment !!!
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Political incentives for growth
In what circumstances do those who control political power have incentives to
predate, or allow narrow private interests to benefit from rents and state patronage;
and in what circumstances might they have incentives to nurture growth and spread
its benefits more widely?
What makes it worthwhile for societal groups to organise around broader shared
interests in public goods rather than pursuing narrow private interests through
personal networks?

Two inter-related components matter
(i) the individuals personal motivations,
(ii) his/her principal economic and political relationships that in turn depend on
the cultural and institutional framework in which the individual is embedded
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Factors influencing political incentives
1) Structure of the economy
2) Source of government revenues
3) Nature of the political system
4) Use of violence
5) Collective action
6) Public expectations of government
7) Attitudes of political leaders towards business
8) Nature of the bureaucracy

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Lessons for donors
- External influences on political incentives
- Strengthening internal incentives for collective action
- Enabling more constructive state-society relations


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