Stating It Afresh
The principal problem with the neo-liberal understanding of state, which is the institutional ideology of the Fund-Bank combine, has been that as the state withdraws, it leaves the economy without any agency capable of transforming investible resources into actual productive investment. In this report the Bank has tried to redefine the states role to focussing on providing the enabling environment for the productive forces without actually getting into production. More importantly, the role of the state is seen in strategic selection of collective action by involving citizens and communities in the delivery of core goods. The monolithic state is sought to be replaced by a more decentralised form of governance. This is the effectively the basis of what the report calls an effective state.
There is nothing really new in this proposition, not even in the way in which the notion of an effective state is sought to be defined. An effective state, according to the report, is one which uses its capability ability to undertake collective action to meet societys demand for services like law and order, public health and basic infrastructure. This is more jargon, no real advance in concepts.
In an interesting sidelight, this years report has made an index of corruption and tried to quantify the factors that lead to it. The index of corruption shows, not unexpectedly, that corruption is positively correlated with distortions in policy, unpredictability of the judiciary, non merit-based recruitment and ratio of civil services wages to wages in maufacturing. The last variable is illuminating. What the correlation between the two means is that lower the ratio of civil services wages to manufacturing wages, higher is the level of corruption. And as the ratio rises, the index of corruption drops substantially. Similarly, the cross country government credibility index shows that there is a strong positive correlation with private investment and growth. What comes out most starkly is that governments with low credibility have, as a group, registered negative growth in per capita income. Even though there is always a problem of spurious correlations and multiple associations with such simplistic correlation there are some useful inferences to be drawn.
The message and tenor of the report may appear to be contradictory to the policies of liberalisation advocated by the Bank. Even though the report says that without an effective state socio-economic development is impossible, it is not advocating reinstatement of the state as a principal player. But this report clearly marks the obituary of the minimalist state, written by its one-time prime exponent. If anything, the report empirically establishes that the extent of state intervention the world over has increased in the last 50 years or so.