growth and politics session

8/10/2019 Growth and Politics Session

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POLITICS OFDEVELOPMENT

Williams et al (2011) Politics and Growth. In: Development Policy Review 29:S1, S29-S55


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ASSIGNMENT FOR NEXT WEEK

1. Read (on BB required reading)

- Moore the causes of bad governance

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2014Nadia Molenaers2


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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 factorsOctober 14,



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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

growthThe debate is not settled.

Clear connection over the long run, but correlation not causalityShort run variations in growth performance cannot be explained by governance

Measurement issues (aggregationsubjective dataoutcome 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 politicspolitical-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, inparticular infrastructure, human capital and technology acquisition, that would be

underprovided by the private sector.

But: weight and sequencing problemfocus 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. October 14,2014

Nadia Molenaers11


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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, improvedliving 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-operationor collusioncan 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 areoften 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 : wartaxaccountabilityopen access societies (North) are quite

rare: rule-based economic and political competition, and the organisation of a broadrange 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

citizensover tax or anything elsedue 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 capacityclientelism : 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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growth and politics session

Documents