State Capacity and Industrialization in Africa

by Panichi Gundo

There is a compelling theoretical background that argues that, sometimes industrial development policy failure is not an outcome of policy design but a result of the role the government chooses to play and its capacity (Lall, 2004; Evans, 2005; Chang, 2008, Peres and Primi, 2009; Lin and Chang, 2009; Altenburg, 2011; Warwick, 2013; Yülek, et al, 2020). Neoclassical economists, Latin American structuralist and industrial strategy theorists, to some extent, agree that the divergent trajectories in the industrial development of Latin America and the NIEs of the East Asian have been a result of the role government played in intervening in the economy (Cheng, et al, 1998; Chang, 2002; Lall, 2004; Lin and Chang, 2009; Weiss, 2013, Szirmai, 2013; Guandagno, 2015; Storm, 2015). For the state to successful intervene, it need capacity. Intervention on its own is not enough without capacity. There is very little studies and evidence from African on what state capacity should have in order to successful implement its industrial policy.

In a study of two USA post-depression programmes, The National Industrial Recover Act (NIRA) and the Agricultural Adjustment Act, Skocpol and Finegold (1982) were able to ascertain the importance, impact and differences in state capacity in delivering government policy. The two policies resulted in opposite outcomes. NIRA collapsed under conflict and confusion but the Agriculture Adjustment Act was very successful and became institutionalized.??? The Agriculture Adjustment Act succeeded because it was implemented by a government agency with capability that NIRA did not have. This empirical evidence confirms that state capacity was integral in the success of The Agriculture Adjustment Act. State capability presents one of the critical challenges in the economic and industrial development of a country yet there are few studies like Skocpol and Finegold (1982) in Africa that put the government at the center stage of the economic development of the country, a gap this study would like to close.

Weiss (2013), Warwick (2013), Rodrik (2008a) and Altenburg, (2011), to some extent, agree that industrial policy has been beneficial in many countries, spurring structural transformation and economic development. To a large extent, I agree with the above statement because, whereas, technological upgrading and innovation, are the core ingredients of structural transformation, they do not take place on their own or automatically (Weiss, 1998). Instead, they require a state with the prerequisite capabilities and a good choice of instruments that can yield the greatest outcome of their efforts, intervention, support and promotion. In the process of reallocation of resources from low to high productive activities, in an effort to spur economic growth, Evans (1995) recommended that the state need not to only to intervene but it needs the capability to effectively and efficiently facilitate and promote the resources reallocation.

Gomide, Pereira and Machado (2018), argue that, because industrial development policy is public policy, the only possible way through which we can better understand it, is through the analysis of the state, which remains the main actor in the promotion and facilitation of structural change. The concept of state capacity is thus a way of trying to project the actors, the institutions and the procedures that the state uses to mobilize, combine and implement public policy. In the industrial policy context, state capacity is the ability of the state to accomplish the industrial development policy goals (Fukuyana, 2013). Altenburg (2011), argues that the state need capacity in order to be able to influence structural change in a way that improves its competitiveness and performance. On the same note, Skocpol and Finegold (1982) portrays state capacity as the ability by government employees to implement the official goals of the state in this case, industrial policy, even in the face of actual or potential opposition by powerful business and social groups or in the face of recalcitrant socioeconomic circumstances. On the same vein, Yülek, et al. (2020), refers state capacity as the ability of a government to administer its territory effectively. The state capacity concept is a relevant and an important concept in the study and evaluation of the ability of South African government’s capability to accelerate industrial development in the county.

Altenburg (2011), citing empirical evidence from the Organization for Economic Co-operation and Development (OECD) and the NICs of East Asia, concluded that that industrialization in these countries was built on reasonable state capacity. This is because, transforming the structure of an economy is a complex industrial policy exercise, and its implementation tends to depend on the level of the state capability (Lall, 2004, Evans, 1995, Peres and Primi, 2009, UNCTAD, 2016). However, Lall (2004), lamented that many governments especially in the developing countries do not have the capacity. ?For industrial policy to be able to achieve its intended goals, Salazar-Xirinachs, et al (2014) and UNCTAD (2016), advised governments to deploy technically and experienced government leadership, with adequate experience in order to adequately support industries. Salazar-Xirinachs, et al (2014), advised governments against the deployment of government personnel without “technical knowledge”. If a government have personnel with limited “technocratic knowledge”, Salazar-Xirinachs, et al (2014), recommend that the government needs to limit itself to horizontal or functional industrial policies and only choose selective or vertical industrial policies when it has amassed enough technical capability. Maloney and Nayyar (2017), added, key government personnel may need to be send abroad to advanced economies to learn not only academic knowledge but skills on how advanced bureaucratic states systems work and functions and the capabilities needed to executive industrial policy. ?

In view of the Latin American countries’ failure to industrialize, Lall 2006), Altenburg (2011) and Cingolani (2013), attributed lack of state capability to have ticked all the boxes of the state capacity dimensions. The state capacity lacked the minimum qualities and characteristics required to effectively implement industrial policy. Altenburg (2011), posits that for state capability to adequately deliver industrial development policy, it needs to have four components. Firstly, state capacity need to have strategic capability, that is, the ability of the state to design policies that are able to inculcate sustainable and productive growth for the benefit of the society at large. Weiss, 2013 and Altenburg (2011), concur, that in order for the government to alter the structure of production toward sectors of the economy that are expected to offer better prospects for economic growth, governments need to have the capability to understand and monitor the ever-changing domestic and global markets environment. This calls into action an analytical ability to observe phenomenon and translate it into the designing of strategies that change the structure of the economy in response to the changes and challenges in the policy space. The capability to set targets to be achieved and the actions to be taken when policy deviates need government employees with technological knowhow. To a larger extend I agree with Evans (2011) and Warwick 2013), when they argue that, industrial stakeholder mapping and engagement need to be aligned with the state strategy capability. This dimension of the state capacity need not to be taken for granted. ?Strategic capability is needed for the state to be able to create social contract and achieve policy embeddedness and above all to design, implement and select industrial policy instruments that are likely to result in the effective achievement of the policy intended outcomes. ???

In a comparative quantitative and qualitative study of the automobile industry in Turkey and South Korea, Yülek, et al. (2020), noted a dichotomy in the results. Even though the two countries began with similar automobile industrial policy plans and conditions, the Turkish automobile industrial development was far much outperformed by that of the South Korea. Their conclusion was that, the divergence in the two countries outcomes and performance of their automobile industrial development policy could be explained by the differences in the two countries’ state capacities. This study, cast at the center stage the importance of understanding the concept of state capacity in industrial development policy, which the current study seeks to understand in the industrial development context of South African.

Guimar?es (2004), attributes the successful industrial development of Japan and South Korea after the Second World War to the high state capacity the nations had. State capacity was deployed by the NIEs to project the national industry and the infrastructure. State capacity was used to stimulate exports, control the process of the import of technology and regulate and screen Foreign Direct Investments (FDIs). State capacity was deployed to promote competition among firms and private sector groups. Declining industrial sectors were restructured. The possession of high levels of state capability with technical knowhow, Guimar?es (2004), is convinced was the determining factors in the NIEs rapid industrial growth. State capability was effective in influencing the allocation of production resources and played a crucial role in the technological development, upgrading and catch-up of the industrial production in the East Asian Tigers. This made China and South Korea to be able to compete in the global markets. The production of a highly and well prepared government bureaucracy with a high degree of autonomy in Japan was not an accident but a culmination of a long process, rigorous training, and discipline and shared cultural values. Guimar?es (2004), is convinced the high industrial development of Brazil during the Vargas government (1951-1954), was accompanied by the strengthening of industrial capacity of the state during that time. Thereof, one can argue that state capacity is at the foundation of the successful industrial development policy implementation. ?

Evans (1995), in his book Embedded Autonomy, posits that the secret to industrial development is an outcome of state behaviours and actions. The state has the power to shape structural change and promote industrial development through its transformative capacity. However, this can only happen if a high level of embeddedness autonomy exists. Embedded autonomy is a result of a combination of internal government coherence within agencies and the internal connectedness with key sectors of the industry (Rodrik, 2008c; Cingolani, 2013, Warwick, 2013). Evans (1995), associated the rapid economic development of South Korea with high levels of embedded autonomy and the low levels of embedded autonomy with the slow development in Brazil. In low embedded autonomy state, industrial policy implementation is a challenge because policymakers are likely to pursue their own individual goals than the key industrial sectors collective shared goals. This is because the state lack the capability to rally its troops on the shared goals and vision (Cingolani, 2013).

Altenburg (2011), also observed that for industrial policy implementation to be successful, the state need the capability to establish clear rules of the game to enable market based competition. The state needs the capability to enforce contracts and make it simple for the entry and exit of companies. According to Altenburg (2011), the proliferation of monopolies and cartels in a country need to be safeguarded, because this tend to hold back a country like South Africa from achieving domestic and international competitiveness (Zalk, 2014, Rodrik; 2008b).

The other component of state capability which is needed to successful implement industrial policy, Altenburg (2011) posts, is the capability to deliver services effectively. Left on their own, markets are susceptible to failure and may also fail to deliver the expected products and necessary services. In the light of the above, governments, Altenburg (2011), proposes should be in a position to set-up policy implementation agencies and instruments with effective “carrots-and-sticks”, coupled with ?measurable and verifiable systems, sunset clauses, programme reviews, monitoring, benchmarking and periodic evaluation ?(Rodrik, 2008c; Warwick, 2013).? ?

Guadagno, (2015), noticed that the Latin American industrial development policies were predominantly sticks shy but carrots abundant. There were no clear performance standards and targets. Policies only changed according to who was in power not according to changes in the policy environment. Policy goals were always in constant state of change, giving rise to uncertain and low confidence by the private sector to commit resources. Recruitment and promotion of industrial development policy personnel need to be based on merit and there is need to ensure that personnel have a good appreciation and understanding of challenges the private sector encounters. The successful implementation of industrial policy and the subsequent rapid economic growth in Japan after the Meiji restoration, Guimar?es (2004), attribute it to the Japanese government’s promotion of a “meritocratic non-political bureaucracy”. Guimar?es (2004) argues that too much political influence and interference in the working of the government machinery is detrimental to the building of state capacity. Altenburg (2011), concurs, when he commended that, industrial policy implementation failure is caused by government political systems that are more often build on favouritism, lack of resources and the lack of correct incentives for effective policy implementation. State capacity is needed to design and implement industrial policies that have good prospects of transforming the structure of the economy and mobilize industrial sector and societal support. Even in the centralized South Korean industrial policy in the 1960, Cheng, et al (1998), found some evidence of meritocratic, which they attributed to the country’s successful industrialization.

The literature on industrial policy design and implementation, put emphasis on the importance of the need for policy coherence, close interaction, feedback, constant reporting and follow-ups as some of the pillars of the state capacity (Rodrik, 2008c; Altenburg, 2011, Warwick, 2013). Rodrik (2008b) and Altenburg (2011), calls for the need for regular performance measurement and evaluation by independent agencies or consultants. Performance results need to be feed back into the policy system in order to measure the performance against the set targets. Measuring performance also helps in to ensure that lines of accountability take responsibility for the success or failure of the policy execution (Warwick, 2013). There is need to unbundle policy formulation, implementation, evaluation and financing by independent policy think-tanks to ensure that policy is evidence-based and is not vulnerable to rent-seeking behaviours. There is need for designing policy in a collective, collaborative and experimental learning way. This ensures that service providers and all stakeholders affected by the policy are kept in the loop and communication is open. This motivates private sector participation and discourages information hoarding.

The capability to create and remove protection when needed, while avoiding political capture, is the fourth state capability, Altenburg (2011), considered to be essential in order to effectively implement industrial policy. To be able to transform, upgrade and diversify the economy the private sector will need some protection and targeted support to motivate and encourage the private sector to commit resources. However, protection and support, Warwick (2013) recommended, should be phased out as soon as the targets have been met. The state needs the capability to closely monitor and have the desecration to withdraw, transfer and reallocate the incentives before they become unproductive. Amsden (1989), Cheng, et al (1998), noted that one of the most important component in the success of the NIEs of Eastern Asian was the sate capability to inspire and instill discipline in the private sector. Discipline was fostered by transparency, public information sharing and the establishment of a rules and evidence-based industrial policy.

Maloney and Nayyar (2017), advises that for industrial policy implementing agencies to be successful they need to operate in businesslike environment. Targets and performance benchmarks need to be set to enable policy deliverables to be evaluated, because evaluation is the best measure of capacity. This dove tails with what this study intend to do. Governments can improve state capacity by improving information collection, coordination and sharing. However, in selective industrial policy implementation, Maloney and Nayyar (2017), warned market failure is more prevalent because the government employees are more vulnerability to private interests, which may end up in failure to execute policy.?

In a review of the Latin American structuralism and views of the industrial policy strategists, selective-industrial policy has many implementation risks. However, the risks can be minimized by what Warwick (2013) called a ‘soft” form approach where the government intervention takes a more facilitation and coordinating role, which is constant with the systems approach to policy implementation. The changes of success are higher and less costly. Nonetheless, Warwick (2013), stressed that irrespective of which intervention form the government may choose, there is need for better monitoring and evaluation of the policy performance and the need to have that capability should never be compromised if industrial policy is to be successful.

In the book, Embedded Autonomy, Evans (1995), conceptualized state role and capacity as a form behavioural typology. In this behavioural approach, the state can take four roles. Firstly, the state role can take the policing role of “custodian” or just a general regulator. Secondly, it could take the “demiurge” role where its role could be that of provisioning of services and goods to the industrial policy players. Thirdly, the state could play the role “midwifery” role, attracting and directing new investment and capital flows to new industrial sectors. Fourthly, the state can perform the role “husbandry” role, nurturing and developing the different industrial sectors. In many situations, the role the state plays is a mixture or a blend of the above roles. The industrial policy implications here are that, the nurturing, training and deployment of industrial policymakers and implementers need to be informed by the role the government will take in the industrial policy domain. Which behavioural typology does the DTIC exemplifies, this study will find out.

The literature, theoretical and empirical evidence covered in this section is so vast and wide. It draws insights and examples from many countries and time periods in an effort to capture the concept of state capacity appropriately. One can conclude that in where industrial policy was a success story like in the NIEs of East Asia and where it failed like in Latin America and Africa, state capacity was the differentiator. I am inclined to agree with Altenburg (2011), that countries that are on their structural transformation journey like South Africa, cannot imagine to unleash an effective and success industrial policy implementation without a capable state capacity that has in-built systems and mechanisms to effectively monitoring and evaluate its own performance. To be success, industrial transformation needs a trusted and disciplined entrepreneurial public service with technological knowhow that inspires both the private sector and the society at large.

Panichi Gundo is an Industrialization Policy Graduate and a Research Assistant at SJG Consulting. You could contact him at; [email protected]m