The Political Economy of the Rise and Decline of Developmental States

The spread of industries in several peripheral countries after the Second World War and the great divergence that has opened up between them since the 1980s has sparked widespread debate on economic development. Interpretations based on neoclassical and on institutional economics1 are the major fields of historical explanations. Despite their wide differences on the determinants of economic growth, they share a common perspective on three basic aspects: first, the supposition that strategies of development are built on a set of government policies and on institutions that model private behaviours (of course, they disagree on which policies and institutions promote economic development); second, a ‘methodological nationalism’2 in which individual countries’ performances are essentially explained by domestic factors. The third is a corollary of the two above perceptions and says that the state as a major initiator of positive change (in resource allocation, as in the heterodox reasoning, or in the creation of market institutions, as in orthodox thought) is responsible for the success or failure of growth strategies. For the mainstream school, the wrong policies of populist states play the dominant role, for the heterodox, they are those of liberal or neo-liberal states. For both, a meritocratic state is central to successful development strategies (to avoid rent-seeking cases according to neoclassical authors, to discipline large firms according to the institutionalists).3