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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