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Avoiding Asia's state capacity trap

19 Sep 2018

Asian state capacity trap

The story of Asia's rise is told most often by economic development. This is at best only half right. Instead, successful Asian nations have prospered because they built competent governments with high levels of “state capacity”.

Today, this progress has stalled. In addition to the famed “middle income trap”, Asia faces an equally serious state capacity trap too.

East Asia's economic miracle is by now familiar. Countries like Japan and South Korea developed a new economic model that transformed their previously unproductive agrarian societies.

Export-focused manufacturing was their springboard, allowing tens of millions to move from farms to factories and beyond.

But more than is commonly admitted this story is also one of basic, competent public administration.

Leaders like Singapore's Lee Kuan Yew played down the role of the state. Mr Lee praised Asian governments for their leanness, attacking the bloat and initiative-sapping inefficiency of welfare states in Europe.

Yet Asia prospered because its states developed and regulated new industries, and managed the social transformations they brought.

Asia's tigers also provided their people with public goods like education and infrastructure, while helping those who lost out during the continent's rapid development shift.

All of these are aspects which Chicago University political scientist James Robinson, one of the world's leading development thinkers, would recognise as state capacity, which he defines as the ability and desire of state to “raise resources and implement policy”.

This sounds vague, but it can have profound consequences.

At one level, Dr Robinson means a government that is capable of formulating and delivering objectives. This is the kind of capacity that helps to develop military strength.

It is also especially important in early industrialisation, for instance in building basic infrastructure.

But state capacity is more subtle than just this. It also means the ability to govern inclusively, rather than via coercion.

A good government will rule in the interests of its people, and do so with their consent. It will be able to mobilise their talents and resources, rather than acting as a machine to be captured by one group or class.

This makes intuitive sense. States are more effective when their people, and in particular their middle classes, do not need to be forced to pay taxes and obey laws, because they view their leaders as acting broadly in the common interest.

This is doubly important during periods of rapid development, not least because citizens who might lose out during economic transition trust that the state will help them to recover.

These ideas also help to explain why state capacity has of late become such a fashionable buzzword.

It underpins Dr Robinson's own works alongside MIT economist Daron Acemoglu in their 2012 influential book "Why Nations Fail", which argues that good political institutions are the key to economic advancement, not other factors like climate or culture.

The idea of state capacity has also found favour with thinkers in India, including Arvind Subramanian, who until this year was Prime Minister Narendra Modi's chief economic adviser.

Despite this, too many governments around Asia have of late shown signs of state capacity decline.

Malaysia is one example. Under former Prime Minister Najib Razak, the country's once-impressive state machinery degraded, battered by allegations of corruption and a system that favoured some ethnic groups over others.

Prime Minister Mahathir Mohamad has made restoring faith in Malaysia's government a priority.

But Malaysia is not an isolated example.

Asia is in the midst of an autocratic turn, according to the most recent annual index published by Freedom House. From Cambodia and Thailand to Myanmar and the Philippines, state capacity is at best holding steady and in many places declining.

The region's two most important emerging economies are not exempt. India's state has long suffered from low capacity.

But recent evidence suggests that even its most competent institutions – for instance its Supreme Court or Election Commission – are also now struggling, a point underlined by political scientist Milan Vaishnav.

Then there is China, which has in many ways one of the most impressive governing records in the region. China's leaders have achieved impressive outcomes. But it also seems clear that China is becoming more autocratic under President Xi Jinping.

This will likely lessen its state capability, even as its government appears outwardly impressive, especially in the area of new technology.

This was a point Dr Robinson made to me in a recent article I wrote for Nikkei Asian Review. "This isn't all about whether the state can install clever facial recognition technology," as he put it.

State capacity is typically strongest where a state does not need to invent new kinds of technologies to control its citizens, but rather when its policies are inclusive.

Perhaps this ought not surprise us.

Research from Harvard political scientist Lant Pritchett shows that of the world's 100 or so "historically developing" states, only eight have managed to develop what he describes as "high capacity" governments, including three in Asia: Brunei, Singapore and South Korea.

And here a high capacity government only means one with institutions roughly as good as those in Uruguay.

Periods of state capacity degradation are actually quite common. Almost no country in Asia has managed to follow Singapore and persistently improve its government.

According to Mr Pritchett's work, roughly half of all of the world's states have "very weak or weak" capability, and three quarters of those have seen their capability decline over recent decades.

In the face of these challenges, Asia needs a radical new political agenda to develop state capacity, learning from the best around the region.

Part of this agenda would involve investment to develop basic capabilities. But it also involves updating the machinery of state for each stage of economic development.

Indeed, rather than being a problem mostly for early industrialising economies, the challenge of avoiding the state capacity trap gets trickier as you develop.

Advanced economies face a range of problems, from combating diabetes to developing businesses with frontier technologies, that require high state capacity.

For half a century, it has been an Asian strength and a key to the region's development. Much more needs to be done to keep it that way.

James Crabtree

Associate Professor in Practice