The State and State Capacity
This chapter briefly discusses the state, its ‘capacity’ and how they relate to industrial policy. All nations design and implement policies. Some are successful and others fail. In fact, some governments succeed and others fail. But, so does the market;
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The State and State Capacity
The state: What is it? Why does it exist? These have been questions frequently revisited by philosophers, political scientists, and more recently economists. The questions of whether and how much the state should intervene in the economy (which is debated by economists varying from Adam Smith to Karl Marx), and in particular whether it can be useful in economic development (discussed by economists such as Friedrich List, Arthur Lewis), have been even more controversial. The state designs and implements industrial policy with a view to push industrialization and consequently economic development. Thus, the level and quality of the state’s capacity (or capability) to pioneer, drive, or at least support industrialization are crucial in achieving successful industrialization and thus economic development in general. On the other hand, a strong industrial layer will enable the success of the industrial policy and a healthy and comprehensive industrialization. The corollary is that if the industrial layer is weak industrial policy may be doomed. Thus, it turns out that considering industrial policy as a set of measures independent of the formation and development of a strong industrial layer may seriously jeopardize the effectiveness of policy. The state with adequate ‘capacity’ which realizes the importance of the industrial layer can be a significant force behind the formation of the industrial layer, which consequently can ensure successful industrialization. On these lines, this chapter discusses the dimensions of the state’s capacity to design and implement policies. © The Author(s) 2018 M. A. Yülek, How Nations Succeed, https://doi.org/10.1007/978-981-13-0568-9_11
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11.1 State Capacity and the Developmental State The concept of state capacity has received attention among political scientists, who considered it a crucial characteristic of a political system.1 At a general level, state capacity can be defined as “the ability of a government to administer its territory effectively.”2 In practical terms, one aspect of state capacity refers to the power of the state in mobilizing financial resources from people in a legitimate and, if necessary, coercive way. This is referred to as the ‘extractive capacity’ of the state. The second aspect of the state capacity, however is to direct the mobilized funds towards the achievement of what “the central policymakers perceive as the national interest.”3 That is more important, as it represents effectiveness in reaching policy objectives which have a societal meaning. Historical experience shows that more often than not, state decision makers in different countries have used the extractive capacity of the state to finance war and expansion or to achieve other political objectives that dominated objectives related to economic development. However, long- term economic development has nevertheless also been a major occupation of the state in many countries. That is referred to as the state’s ‘steering capacity,’ which is the
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