From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Thu Mar 03 2005 - 11:30:47 EST
EPW Book Review February 26, 2005 Revisiting the 'Developmental State' India and South Korea ------------------------------------------------------------------------ Locked in Place: State-Building and Late Industrialisation in India by Vivek Chibber; Princeton University Press, Princeton and Oxford, Indian reprint: Tulika, 2004; pp xx + 334, Rs 630 (hard cover). ------------------------------------------------------------------------ Bernard D'Mello This is a lucidly written, imaginative and well-researched book that focuses on the relation between the state and the capitalist class in explaining relative success or failure in putting in place 'developmental state' institutions to advance rapid industrialisation and 'development'. The book seeks to explain why the Indian state failed, in a relative sense, in "its mission to transform India into an industrial dynamo" (p 4). The focus is on the domain of industrial planning and policy. Why did the South Korean state succeed in the domain of industrial policy and planning, whereas in India, why did the state's efforts to promote a dynamic industrial sector fall prey to the twin evils of bureaucratic paralysis and capitalist rent-seeking? The author argues that the state-building project is critically mediated by the nature of state-capitalist class relations. Why was it that in Korea the capitalist class reacted positively to the idea of a strong 'developmental state' whereas in India the capitalist class actively opposed such an agenda? In other words, why did the Indian capitalist class torpedo the Indian state's agenda of installing 'disciplinary' development planning institutions, while their Korean counterparts acquiesced to their own disciplining by the Korean 'developmental state'? And, "why was the Indian state not reformed in appropriate ways after its inadequacies became clear?" (p 12). Five Theses Firstly, the process of building a 'developmental state' in India was stunted because of a highly organised and concerted offensive launched by the capitalist class against the idea of 'disciplinary planning'. The Indian capitalist class did not support the idea of a 'developmental state'. In contrast, this was highly successful in Korea because the managers of the Korean state were able to get the cooperation of the leading segment of the capitalist class to the development agenda that involved disciplinary planning. Secondly, the Indian capitalist class opposed disciplinary planning because in the import substitution industrialisation (ISI) model chosen it was rational for capital to do so. In contrast, the Korean capitalist class extended its support to disciplinary planning because in the export-led industrialisation (ELI) model chosen it was in capital's own self-interest to do so. The ISI and ELI models generate quite distinct capital accumulation strategies. In the former, i e, ISI, there is an attenuation of competitive pressures and firms are under little systematic pressure to modernise and technologically upgrade their operations. In the latter, i e, ELI, firms have to continuously adapt to the rigors of inter-national competition. They had to overcome the finance constraint, acquire, assimilate and adapt imported technology, solve the problems of coordinating investments, and succeed in international marketing, all of which required a different relation with the state. Thirdly, South Korea was able to make the transition from ISI to ELI because certain crucial conditions virtually unique in the world economy were available to Korea, conditions that simply were not available to other LDCs like India. The condition stressed by Chibber is that "during the 1960s Korea fell within the ambit of Japan's industrial strategy, which had as one of its components the relinquishing of markets in the United States to Korean firms. In addition to this demand-side bounty, Japanese trading companies - the Sogo Shosha - also secured critical finance and machinery for Korean firms, which was essential to building the muscle required for competitive success" (pp 41-42). Fourthly, besides the mobilisation of concerted opposition to the installation of a developmental state by the Indian capitalist class, a full explanation of the failure of the Indian National Congress to institute disciplinary planning would include the fact that the party leaders also "demobilised a massive and quite organised labour movement - thus reducing the state's leverage against the capitalist class" (p 43). In the aftermath of the second world war there was a huge labour upsurge, which for a time, intimidated the capitalist class enough to ask the unions for a truce. But the Indian National Congress chose to split the All-India Trade Union Congress (AITUC) and divide the labour movement by creating the Indian National Trade Union Congress (INTUC), and then demobilised it. Fifthly, the institutions of industrial policy and planning persisted, despite their obvious failings. Changing the investment strategy to an export-oriented one and overhauling the state apparatus were both tried, but there was failure on both counts. The Planning Commission had little power to get its plans implemented. Over time its legitimacy got eroded as it came to be "identified with ineffectual red tape and bureaucratic hurdles, rather than with policy success" (p 46). This gave the rival ministries greater power to bloc moves towards seeking greater control over plan implementation. As Chibber puts it, "the agenda of reform was thus tilted away from giving planners greater power over capital, and toward granting capital greater freedom from the state" (p 46). The state continued to implement industrial policy and churn out five-year plans, but its capacity to get the policy practised and the plans implemented became weaker and weaker so that by the 1970s the "state had become locked in place" (p 47). Before coming to our critique of the book, we now present an outline of the book chapterwise. Chapter 2 probes into the nature of the 'developmental state' in terms of the existing literature on the subject, and also summarises the basic arguments, the latter just summarised by us above. What kind of institutional capacity is required for industrial policy and planning to succeed? The answer to this question makes it possible to analyse why the appropriate institutional capacity was acquired in Korea but not in India. A noteworthy feature of 'late late developers', as Albert Hirschman called them, is the shift of focus of the state from "managing the effects of accumulation to accelerating its pace" (p 14). A certain institutional environment has to be created to turn industrial planning into disciplinary planning. What are the ingredients of this institutional environment? Following Peter Evens, the author Vivek Chibber states that first and foremost, the policy agencies have to be guided by the norms of bureaucratic rationality, the essential ingredient of a Weberian state structure. In addition, Chibber goes on, a developmental state requires "a strategic rationality, one that is geared toward a particular end" (p 21), that of rapid successful industrialisation, which requires meso-level inter-agency coordination, what Chalmers Johnson emphasises in terms of the importance of the nodal agency. In Korea this was the Economic Planning Board (EPB), in Japan this was the Ministry of International Trade and Industry (MITI), and in India this was supposed to be the Planning Commission (PC). Besides bureaucratic rationality and inter-agency coordination, the state needs to construct the means to conduct "structured interactions with market actors" (p 22). This is referred to in the literature as the state's 'embeddedness' in the economy, which involves the creation of deep ties to the industrial sector. There has to be a 'shared project' between the political elite and local industrialists, with an agreement around the modalities of achieving success. The capitalist class loses a significant degree of "freedom over where, when and how much to invest" (p 27). Installing the Developmental State Part II of the book - comprising chapters 3 to 6 - is concerned with the installation of the state. Chapter 3 examines the origins and evolution of the Korean developmental state. Basically, in Korea the state-building agenda was supported by an alliance between state managers and the capitalist class. This alliance was made rational by the adoption of export-led industrialisation (ELI). The chapter claims to offer a new explanation of the origins of the developmental state in South Korea. Firstly, Chibber emphasises the emergence of an alliance between South Korean and Japanese firms, without which access of Korean firms to the export market would not have been successful. Secondly, unlike the statists, whom Chibber thinks go too far, he proposes that the South Korean state had more limited power. The state launched the ELI strategy in alliance with domestic business and not over it. And, the launching of the ELI strategy provided the basis for building a developmental state. Regarding the role of Japanese firms in the Korean export success, especially in the US market, Chibber relies on Robert Castley.1 According to this version, Japanese trading companies provided their marketing and sales network for the success of Korean goods in the US market. In addition to this, the Sogo Shoshas also made it possible for the Korean companies to get easy and steady access to credit from Japanese banks. The main sources and destinations of South Korea's trade and the Japanese and Korean shares of the US market in light manufactures, cited in Castley, show that in a matter of five years, by 1966, Korean firms had established themselves in the lucrative US market. Thus the ties made with the Japanese transnational corporations were of crucial significance to the Korean development strategy. Chapters 4 to 6 present an argument as to why, in the Indian case, the attempt to set up a developmental state apparatus failed. Chapter 4 entitled 'Precursors to Planning in India: The Myth of the Developmental State' is intended as a contribution to Indian historiography. The author shows that that the Indian capitalist class was opposed to the kind of disciplinary planning necessary for a developmental state, and that "there were structural reasons for this opposition" (p 85). He argues that basically it was rational for the capitalist class to attack the planning agenda. Indian capital apparently endorsed the idea of disciplinary planning in the final years of colonialism. Chibber argues that this was consistent with its unyielding opposition to disciplinary planning in the years immediately after independence. In Indian economic nationalist history writing, the so-called 'Bombay Plan', formulated by a section of Indian big business, including the Tatas and the Birlas towards the end of the second world war, has been crucial evidence of the 'national bourgeoisie's' preference for developmental state institutions over the alternative of an alliance in a junior partnership with foreign capital. Chibber, drawing on the papers of John Mathai, then a high level Tata executive and the Bombay Plan's principal draftsman, believes that "it was a document designed to forestall future socialist (the socialists in the Indian National Congress, my addition) attacks on business by opening the way for capitalist planning" (p 97). The immediate backdrop to this stance of sections of Indian big business was, in Chibber's view, their negative experience in the National Planning Committee (formed in 1939 at the initiative of the Congress Left, following the Government of India Act of 1935) to devise a framework for future economic planning, and the Quit India movement in the fall of 1942 "which, business feared, carried the danger of snowballing from a movement against colonial rule into a movement against private property" (p 89). Based on access to the correspondence of a few big capitalists, Chibber believes that "in private, fears grew that the upsurge against colonial rule bore the potential of transmuting into a call against the rule of capital" (p 93). Chapter 5 entitled 'The Demobilisation of the Labour Movement' argues that the policy of splitting and then demobilising labour served to make the chances of installing a developmental state apparatus for successful industrialisation even more remote. Chapter 6 entitled 'The Business Offensive and the Retreat of the State' covers the struggle around the key instruments of industrial policy immediately after independence. Basically, the new state managers agenda of installing the instruments of disciplinary planning were derailed by a massive and coordinated offensive of the capitalist class. Chibber examines in detail the conflicts surrounding two events: the setting up of the Planning Commission, and the enactment of the Industries (Development and Regulation) Act (IDRA), first proposed in 1949, but finally passed in 1951. The latter concerned the powers to be given to government to implement industrial policy. The Planning Commission was to be the mechanism to secure internal state cohesiveness, while the IDRA was to provide the institutions for the state's 'embeddedness' in the realm of industry. To the credit of the Nehruvian regime, from the outset, the state managers did make an attempt to formulate industrial policy so as to get the support of the capitalist class and also to acquire the ability to discipline that class. The Industrial (Development and Control) Bill, 1949 had provided for state power to regulate the flow of private investment in exchange for high profit rates (the largesse bestowed by ISI) and provided for punitive measures for delinquent firms. The dilemma was that the very provisions designed to elicit the support of capital (i e, the largesse ISI bestowed), made it rational for capital to resist the instruments of discipline. Indian capital in fact called for a complete revocation of the Bill from the constituent assembly. It proposed a bill that would leave regulation to industry associations, which would have "the power to prescribe the occasion for, and the nature of, state regulation. Regulation by the state was to be replaced by industry's self-regulation" (p 128). It is noteworthy that the capitalist class could only launch an attack on the disciplinary aspects of planning and not planning itself. Its proposals for self-regulation lacked legitimacy since this was a total failure after the war. The legislation for industrial policy was passed and the PC came into being, but both were "severely compromised by the state's concern to appease capitalists" (p 129). The PC was made an advisory body; it had virtually none of the powers for industrial planning. Chibber puts it very well, commenting, "instead of restructuring the state around the needs of industrial planning, the institutions of planning were made to accommodate to the existing structure of the state" (p 129). Reproducing the State Part III of the book examines as to why the state was not appropriately reformed. Chapter 7 deals with how the institutional structure of the Indian state generated a particular pattern of intervention in the economy. A causal link between state structure and the quality of industrial policy and planning is posited. Chibber first examines the South Korean state apparatus, focusing on the mechanisms to ensure internal cohesiveness and those that helped establish the state's links with the private sector. . Why was Korean planning able to do what it set out to do, while Indian planning failed on this score? The difference lies in the nature of the state that implemented a highly selective and discretionary regime of export incentives. The lines of authority within the state were clear, there was a clear enunciation of priorities, there was a smooth and steady flow of the relevant information between state agencies that facilitated monitoring, and the institutionalised channels of communication with private firms, clarifying state objectives and the consequences of non-compliance. Authority within the state centred around president Park's own residence and office, the Blue House, and the Economic Planning Board (EPB) that was the core of industrial policy and planning. In the 1960s and 1970s the nodal agency was the EPB. The EPB had control over the annual budgetary process and even over the allocation of credit, without the need for agreement with the finance ministry. The ministries had to implement the decisions of the EPB and had to report to the EPB regularly on plan implementation. In order to enforce compliance, an efficient system of monitoring and information gathering was put in place. We have already mentioned the key institutional vehicle, the monthly export promotion meeting, where industry representatives, bureaucrats and Park himself monitored firms' progress on export targets. The monthly export promotion meeting was thus not just a 'talking shop'. Coming to state structure and industrial policy in India, as is well known, the IDRA granted the state the power to steer investment through the allocation of industrial (investment) licences, something that was also adopted in South Korea. The system of industrial licensing was supposed to assess the investment scenario while setting development targets and keep the state managers up to date on the progress of investments in various industries and firms. For carrying out these tasks Development Councils (DCs) were set up at the sectoral and industry levels and the Central Advisory Council for Industry (CACI) for overall industrial planning. The DCs were supposed to be the link between the state and private capital, but were advisory in nature. A spirit of competition prevailed among the private members who would not divulge their investment plans. The DCs suffered from a lack of interest from the industrialists and the CACI "faced the liability of being essentially useless" (p 176). This is in sharp contrast to that of South Korea where the direction for industrial policy and planning was set within the same channels where bargaining with the industrialists took place. Further, in contrast to South Korea, the PC had no direct control over the critical instruments needed to implement a plan - the annual budget, the allocation of investment licences, and the allocation of foreign exchange - all of which were the provenance of different ministries. Chibber shows that the PC lacked the authority over the overall process of plan formulation and implementation. Further, it was left without the relevant information for effective plan formulation and operationalisation. And, during the period under study, 1947-70, there was no formal machinery for feedback to the PC on the progress of the plan so that the PC could make an adjustment to the plan if the situation changed significantly. Overall, there was a lack of coordination between the ministries and the PC and also among the ministries, and the PC had no way of disciplining the ministries or the industrialists. The latter soon acquired the ability to 'work the system'. The ISI strategy in practice gave industry almost unconditional protection from import competition. Chibber's comparison of Indian developmental state institutions and practices with the South Korean experience under Park Chung Hee - the respective quality of state intervention, state capacity, 'embeddedness' in the economy (structured interactions with business), and so on - finds the Indian developmental state institutions weak, dysfunctional and, later on in Chapter 8, incapable of reform. A Critique Let us then come to a critique of this important book. Firstly, Chibber fails to assign a role to international politics as much as he does to the Korean-Japanese strategic alliance to achieve competitive advantage in light manufactures in his account of Korean success in penetrating US markets. Martin Hart-Landsberg's2 (1993) analysis squarely points to the fact that easy access of Korean exports to the US market was the quid pro quo for that country's assumption of the role of a front-line actor in the cold war. (The end of the cold war witnessed the extension of US protectionism to South Korea too.) Also, Chibber doesn't think it important to his analysis to bring in agricultural policy and US pressures to allow increasing imports of agricultural commodities from the US as a condition for keeping the US market open to South Korean manufactured goods, and the social distress that this caused in rural areas. Secondly, surprisingly, the severe repression of labour by Korean capital and the Korean state doesn't figure in Chibber's account, something that is surprising considering that he seeks to 'bring class back in'. Thirdly, considering that Chibber's account covers the two decades of the Park years (up to 1979), his account lacks an analysis of the Heavy and Chemical Industrialisation (HCI) plan. This would have tempered his Korean success story, for there is evidence of technological dependence from the time of launching of HCI plan and Korea's relegation to the status of a successful imitator. In my view, South Korean firms adopted imitative technology strategies, that is, they adopted the innovations of successful innovating firms elsewhere. Despite the backing of the so-called developmental state, they did not achieve technological innovation even in the sense of a riposte to the original innovator with parallel development of technological capability. And, once Korean firms mastered the 'base' technologies, innovating Japanese firms had been unwilling to exchange 'key' technologies - technologies which give an edge over rival firms in cost, product specifications and/or quality - with Korean firms. Fourthly, I think Chibber grossly exaggerates, indeed, errs when he claims that Indian industrialists were alarmed at the time that the Quit India movement might extend from its anti-British focus to militant opposition to the rule of capital itself. My reading of modern Indian history suggests that the British rulers managed to crush the main force of the Quit India movement in less than a month to reassert their imperial authority, and 'independence' was a handing over at one stroke of the entire territory and state apparatus to the leaders of the Congress and the Muslim League in a negotiated transaction. Indeed, I would argue that British rule was so powerful only because of Indian collaborators that included government personnel, business luminaries, landlords and rajas (princes). For Indian business, including the luminaries like Lala Shri Ram of the DCM group, the 1940s were a time of unprecedented profits. It could be that they were simply worried that the Quit India movement, if it continued for long, they calculated, would upset the windfall profit opportunity and the moolah they were raking in. In contrast to the good times that capital was witnessing, for agricultural labourers these were years of worse starvation, more so if those labourers were victims of the Bengal famine of 1943. And, as for the industrial workers, to their dismay, the highest profits of the employers of their power-power coincided with their lowest real wages. Chibber simply states that the legitimacy of business with self-regulation was badly shattered; the reader doesn't get a feel of those hard times. But, that planning was on the horizon also reflected the intellectual ambience of those times, internationally in the wake of the Great Depression and the Keynesian Revolution in political economy that made a rational case for the socialisation of investment decision-making. South Korea as a Model Fifthly, and importantly, I differ with Chibber on the appellation of the so-called developmental state and South Korea as the model of such a state. What about institutions like the Supreme Council for National Reconstruction (a committee of top military brass, chaired by Park Chung Hee), the Korean CIA, the Park government-dominated Federation of Korean Trade Unions, the tight state control over the Bank of Korea, all of which led to very skewed distribution of the benefits of growth in favour of military and government leaders, the top Korean chaebols, and US and Japanese capital? Are these institutions not important in any appellation that characterises the South Korean state? Basically, for us, if we are progressives, 'development' should mean more than just successful industrialisation. What about the distribution of income, wealth and political power, the entitlements of basic human needs and democratic rights for all, the quality of workers' lives, the impact on the environment and on other forms of life, and a lot more? Sixthly, while Chibber does importantly debunk the idea of the progressive Indian national bourgeoisie, he refrains from characterising the bourgeoisie. Following the Government of India Act of 1935, our nationalist leaders, supported by the Indian bourgeoisie, worked as junior partners of the British in the provincial Congress ministries during 1937-39. After independence, the Indians in the Indian Civil Service, who had earlier served British masters against the nationalist movement, did extremely well. The British Indian army became the armed forces of independent India; the rebels - who had formed the Indian National Army - lost their former jobs. The new Constitution of India borrowed heavily from the Government of India Act of 1935, and the legal superstructure of British India was retained. In independent India the controllers in the Private Corporate Sector in the ISI regime spawned the proliferation of 'registered firms', mostly mercantile and financial entities as conduits for their black incomes and wealth. The eminent economist K N Raj called them the underworld of the 'parallel economy'. I am reminded of Paul Baran's celebrated analysis of the political economy of backwardness. Baran got it right when after analysing the class structure of the ruling classes he remarked that 'The keepers of the past cannot be the builders of the future'. There is as always interplay of continuity with change, but continuity should not be lost sight of. So, we may ask, when did a 'regulatory state' become a 'developmental' one? When if ever did the Indian bourgeoisie shed its dependent character? Seventhly, I also think it is particularly problematic comparing industrialisation processes in large third world countries like China and India with those of medium-sized economies like South Korea and Taiwan. In the former set, even with very rapid rates of industrial growth, a large proportion of the population continues to derive their livelihoods from agriculture and related activity. So any serious analysis that 'brings class back in' cannot neglect rural class structure in India and therefore the structure of the Indian ruling classes. One also needs to bring in capitalism as a world system into class analysis at the national level. I have critiqued this remarkable book because I benefited from reading it. Industrial policy and planning is still relevant today if it takes account of the internationalisation of finance as an important "constraint within which it has to chart out its course".3 But an export thrust through appropriate industrial policy and planning can be only one element of a plan that has to include radical land reform, provision of basic needs for all, decentralisation of decision-making and resources, a step up in the investment ratio with public investment in the saddle, and the "putting in place of appropriate controls to ensure that 'enterprise' does not become 'the bubble on a whirlpool of speculation'".4 Notes 1 Castley, Robert, Korea's Economic Miracle: the Crucial Role of Japan, Macmillan, London, 1997, and 'Korea's Economic Growth: An Alternative View', Canadian Journal of Development Studies, Vol 18, No 2, 1997, pp 187-212. 2 Hart-Landsberg, Martin, The Rush to Development, Monthly Review Press, New York, 1993. 3 Prabhat, Patnaik, 'Some Indian Debates on Planning' in Terence J Byres (ed), The Indian Economy: Major Debates Since Independence, Oxford University Press, Delhi, 1998, p 186. 4 ibid.
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