The dominant thinking of the Cold War era was to spread capitalism around the globe. The dominant philosophy of the times being that government was not the solution, but the problem. In its attempt to assist countries develop, the International Monetary Fund implemented policies that forced developing countries to adopt a neo-liberal approach of economic development. The neo-liberal approach attempts to: reduce the size of government, limit the power of organized labor, open up markets, and stabilize and globalize currency. The thought process was that governments misappropriate resources, and use economic power to further their own goals instead of long term economic development. Atul Kohli in his book State Directed Development argues that there is no evidence that countries with smaller government authorities are more able to develop and industrialize. His argument is that the main factor is the efficacy of the state and state planning that determines the success of economic growth among late-late developers.
Kohli argues that there are three ideal types of economic regimes in development economics. He uses the term ideal not to mean most beneficial but he means historic patterns of how “state authority is organized and used in the developing world”. At one end he finds the cohesive-capitalist state, at the other the neopatrimonial state. These two extremes will be the models we use in this discussion. Kohli argues that a neopatrimonial state is one where the separation of private and public realms is either weak or nonexistent. His argument is that in developing states with large amounts of political instability where the realms of the private domain and the public domain are blurred, there is an incentive for those in power to use their limited and unstable tenure as a mechanism for rapid wealth accumulation. This is an example of poor governance.
Good governance is an important factor in discussing economic development. Verena Fritz and Alina Rocha Menocal argue in their article Developmental States in the New Millennium: Concepts and Challenges for a New Aid Agenda that “The emphasis has shifted from determining the ‘right’ role for the state… to questions about commitment and capacity”. In other words, the global community shifted from focusing on procedure, to focusing on economic outcomes. This shift is in line with calls from economist Amartya Sen in his book Development as Freedom that the problem with libertarian economics is that it is procedure based instead of outcome based. Of the various outcomes, Kohli argues that the states that have had the best outcomes have been the cohesive-capitalist states. Kohli argues that the state that illustrates both cohesion of power, and capitalistic institutions will be the most successful.
The first element of cohesiveness is a discussion of the nature of the government. Kohli says that these states are “characterized by cohesive politics, that is, by centralized and purposive authority structures that often penetrate deep into the society”. Kohli argues that the states that have developed rapidly in the past fifty years are those with governments that forge bonds with the nations major economic groups and co-opt their resources into the goals of the state, and maintain a strict control over labor. Kohli argues that it is this state capacity to co-opt and control multiple levels of the economy that allows it do direct it in a manner far more apt to industrialization than the free market could. He attests that “for better or for worse, these states have also proved to be the most successful agents of deliberate state-led industrialization in peripheral countries”.
