Growing Into Inertia

Text by Jacob I. Ricks
Photo by Stockvault

Recent years have seen a great deal of discussion about the “middle income trap.” This concept, playing off the older idea of a poverty trap, describes a situation in which a country’s economy is able to emerge from the low-income category through rapid growth but then the growth rate slows and the country spends an extended period of time in the middle-income category. Arguably, the country may never be able to move into high income status.

This “trap” is defined in relation to the extreme success of the developmental states in Japan, Singapore, South Korea, and Taiwan, which were able to move rapidly from low income status to high income status in a period of less than 50 years. Here in Southeast Asia, Thailand, Malaysia, Indonesia, and the Philippines are now supposedly spinning their tires in this economic mud, unable to attain the growth necessary for high income status. More prominently, experts have focused on the possibility that China will also spend the coming years in this trap.

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While recently some economists have criticized the idea of middle-income traps, the empirical evidence that early rapid growth can be followed by a period of much slower development highlights the fact that growth is not always sustained at different levels of development. The implication is that the shift from middle income levels to high income levels requires a different set of policies, skills, and state capacities than that necessary for moving from low income to middle income.

Here I propose that one of the reasons many states struggle to move beyond middle income status is they have yet to develop the capacity necessary to engage with these different developmental tasks. Not only are these policy challenges distinct, they are much more difficult. In this essay I discuss these different types of developmental tasks. I also briefly discuss the reasons that certain tasks are more difficult for states to accomplish than others before providing some thoughts regarding what would be required of Southeast Asian states to move out of middle income status.

Developmental Tasks

Economic growth requires that states be able to accomplish developmental tasks. A developmental task is a state action in the realm of policy-making and implementation directed at accomplishing a development goal. Such tasks range from macroeconomic policy such as reducing tariff rates to education curriculum reform to building irrigation canals.

Development economists have promoted different sets of development tasks throughout the past decades. Beginning in the late 1970s and 1980s, neoclassical economic arguments became dominant, advocating a set of policy recommendations that later became known as the “Washington Consensus.” Proponents of these reforms argued that by removing the corrupt influences of the state, the market would correct itself through open competition. Thus the developmental tasks of this era were geared toward opening up economies and engaging with the world economy. While this approach was rightfully criticized, it did not negate the fact that some of these first generation reforms were absolutely necessary for countries to move toward economic growth, as there are certain economic principles which are universal, such as protection of property rights and market competition.

These first generation reforms were relatively easy for states to accomplish. This was due to the fact that, in many ways, they involved dismantling the state. For example, though not spurred on by the Washington consensus, Vietnam’s doi moi reforms in the late 1980s removed state controls over agricultural production, which had stifled productivity for decades. State bodies that had previously controlled such decisions about what to plant, when to plant, and how much to plant were dismantled as farmers were granted long-term contracts over land and allowed to engage the market. In consequence, agricultural production grew exponentially, allowing Vietnam to become one of the world’s top exporters of rice, rubber, and coffee.

Such accomplishments stand in direct contrast to later policy recommendations which were referred to as second-generation reforms. These include policies like education and health reforms, improved tax collection, and banking regulation. Such tasks involved re-empowering state actors and building up state bureaucracies, which required much higher managerial and political capacity and skill than breaking down state agencies. Not only is there not clear ‘blueprint’ about what the agency should look like when it is reformed, many of these changes also threaten entrenched interests. Thailand’s failed attempts at education reforms provide an excellent example. Despite more than doubling education spending since 2000, Thai students have seen a decline in performance. The Thailand Development Research Institute has highlighted that many of the education system’s shortcomings emerge from a lack of accountability for teachers and an outdated curriculum. Reforming teaching has eluded Thailand for a number of reasons including bureaucratic resistance, a focus on building infrastructure rather than teaching, and a highly centralized education system.

Thus, the first generation reforms might be thought of as the kindling that can start an economic fire, but second generation reforms are the logs necessary to keep it burning bright. Why, then, are they more difficult?

Developmental Difficulties

While the dichotomy of first and second generation reforms is useful, it is better to look at development tasks in terms of what they require of the state. Lant Pritchett and Michael Woolcock (2004) have argued that two factors determine the difficulty level of a development policy for state actors. On the one hand is the information requirement, or the amount of discretion, necessary to carry out the task. Certain tasks require more detailed and specific information, either drawn from professional training or deep knowledge of a place. The more detailed this information is, the more difficult the task. On the other hand, the number of transactions necessary to carry out the task can determine its difficulty as well, especially when face-to-face contact is required between state officials and service recipients. This creates a two-by-two table of different types of policies.

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Policies are those tasks which require extensive decision-making but require few transactions. These policies can be accomplished by the quintessential “10 smart people” in a meeting. Examples include things such as macroeconomic policies like changing interest rates. Many of the first generation reforms would fit in this category.

Programs, in contrast, require few decisions but many transactions. In these cases, government officials have little discretionary power. Instead they implement policies according to rules which are laid out either in law or the agency. The issuance of driver’s licenses is a good example, as the civil servant processing the driver’s application need only follow a set of guidelines and rules to decide whether or not to grant a license.

Practices combine both high discretion and transaction intensiveness. These are among the most difficult policy tasks for state agencies to accomplish because they require the development of state capacity. Government officials throughout the bureaucracy must be trained and monitored throughout implementation. Teaching is an excellent example of a practice. Teachers must make multiple decisions each day how they will implement government policies. They also interact regularly with service recipients. Second generation reforms generally require that states be able to engage with this type of policy task though developing their bureaucratic agencies.

Each of these types of development task provide challenges, although policies and programs are generally easier to accomplish than practices. Drawing from my own research on water management in Southeast Asia, we can identify three different developmental tasks aligned with each of these types. First, the decision about where to place a dam is an example of a policy. This decision can be, and usually is, made by a small group of irrigation engineers. While the decision may be controversial and face challenges from the public, the actual task of deciding where to build and when to build is relatively simple. Indeed, irrigation agencies throughout Southeast Asia have a strong track record of building irrigation infrastructure.

Second, the replacement of broken water gates throughout an irrigation system is an example of a program. These water gates are placed at the head of each secondary or tertiary canal, and over time they are subject to wear and tear. Their replacement is a routine matter. Implementers do not need to make major decisions about such repairs nor do they need to interact heavily with service recipients during the process.

Third, allocating water flows is a good example of a practice. This requires heavy farmer-agency cooperation, with local irrigation officials exercising great discretion in determining the timing of water releases. Farmers must be alerted ahead of time about water flows, and they must be monitored to ensure that they do not extract more than their fair share. Local officials are often pulled in many directions by their bureaucratic mandate, farmers requesting water, requirements of urban areas, and their own knowledge about water availability. Thus the local official becomes an important decider of water distribution. With so many demands, it is little wonder that irrigation systems are often subject to poor management. Indeed, irrigation agencies throughout Southeast Asia struggle to accomplish this task. Officials prefer to work on construction projects because, as one official in Thailand explained, “working with people is difficult.”

My own research in Thailand, Indonesia, and the Philippines indicates that irrigation agencies in all three countries have a great deal of experience with both building infrastructure and repairing it, but they have little capacity to engage in the practice of operating it. As a result, irrigation systems suffer from poor performance while bureaucrats continually focus on building new infrastructure. Such outcomes do not improve service provision or crop production.

While this example is drawn from irrigation, its lessons reach into other sectors. The capacity to accomplish policies and programs is insufficient to move a state beyond the beginning stages of development.

What is to be done?

Abstracting now from the topic of irrigation, sustaining economic growth requires that states develop the capacity to engage with these “practices.” While early stages of economic growth can be achieved through a focus on the “policies” and “programs” that were found in the first generation reforms, maintaining that growth necessitates that state agencies be competent at implementing policies, engagement with service recipients, and adaptive to changing circumstances. In other words, governments must be able to tackle practices.

I argue that one of the most important factors in developing such state capacity is comprehensive bureaucratic reform. While countries in Southeast Asia have proven that they are able to spur rapid growth through reliance on natural resources, cheap labor, and macroeconomic policies, most have not yet shown the nettle to engage with more difficult tasks that require decentralised decision making and engagement with civil society that characterise the practices necessary for second generation reforms. Civil servants in these states are faced with a negative set of incentives that have accumulated over decades of bureaucratic history, which inhibit their ability to accomplish the necessary tasks.

An example from my own research may make this clear. For decades, irrigation experts have argued that the transfer of water management responsibilities to farmer groups is necessary for efficacious irrigation. As a side benefit, including farmers in operations and maintenance would also result in reduced costs to the state. Despite the potential benefits, irrigation agencies in Southeast Asia have failed to incorporate farmer participation in water management. Incentives within the agencies discourage officials from working with farmers. Decisions about pay increases and promotions focus on construction projects rather than service provision, which leads many civil servants to consider working with farmers a “waste of time.” Without reforms to these agencies, it is highly unlikely that these irrigation systems will ever fulfil their potential.

The same could be said of other state agencies. Unless incentives are turned toward quality service provision, the bureaucracies will continue to focus on “policies” and “programs” and fail to address the more challenging issues. And until such tasks can be addressed, sustained rapid economic growth remain elusive.

About the author

Jacob I. Ricks is an Assistant Professor of Political Science at the Singapore Management University.

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