The State and the Market in the Building of African Economies

1
African Peer Review Mechanism
10th
Anniversary
The State and the Market
in the building of African economies
Mahmoud BEN ROMDHANE
Draft Paper
April 2013

La mise en place des ISI a impliqué un soutien public substantiel ainsi qu’une protection des
INTRODUCTION
From the time of independence until today, the destiny of the state and of the market in
Africa has not been very different from that in the other regions that were called the Third World
and then that are known today as the “developing world”. What probably distinguishes Africa is the
sporadic and even dramatic final nature of one with the other – the State and the other - during its
historical process during the last half century.
In Africa it is sometimes the state and sometimes the market that are considered to be the
motor for development. This has even gone as far as caricature. The relationship with regard to one
and then the other has been passionate, merged and ideological in the framework of an exclusive
version; one against the other.
Why has this happened? Probably because of the economic and historic realities because at
the end of colonisation, Africa, which was the victim of the most terrible plundering, was the region
and in which the characteristics of underdevelopment and independence – dualism, marked
specialisation in the production of primary goods, the fact that there was no native middle class,
were the most obvious and where action by the state had to be the most determining to reconstruct
the economy and society. A state without the market is a state against the market. This vision
marked the states and the economies of independent Africa until the start of the 1980s style this state
is stored to the market mechanisms, granted the guaranteed income to developing industries that are
protected for too long, and acted in a discretionary and unpredictable manner that could be described
as an attempt to obtain votes.
The debt crisis that was about to strike the Third World and Africa and the exhaustion of the
industry model of substitution of imports (ISI) that was seen at the start of the 1980s, will oblige the
continent to turn to money lenders as a last resort, the International Money Fund and the World
Bank at a time when these international financial institutions had become extremely neoliberal. The
State was blamed for the crisis and all the problems; its omnipotence in all domains and in all sectors
had to be ended and a market economy had to be created to take its place. It was believed that one
should have faith in the market and not in the state. Structural development plans were becoming
worldwide, and common destiny was developing countries. There was privatisation of public
enterprise and such as public services in the fields of protection, deregulation, free exchange, free
circulation of capital and investments and cancelled plans became the policies to be implemented.
The development of economy became obsolete because it was believed that the same economic
remedies should be applied everywhere. For almost 2 decades, Africa and the entire world were
subjected to the “Consensus of Washington”. As the most fragile economic region, it is in Africa and

that this ideology Africa and this policy is that is fully applied. It will be in the laboratory of
neoliberalism that the damage and destruction will be the most important. In terms of development,
Africa will have lost two decades, even a quarter of a century.
From the end of the early 1990s it started to become clearer and clearer that the reign of the
consensus in Washington could no longer move forward as a candidate and that in the absence of a
state strategy, any development project was bound to fail.
Africa has been re-establishing itself since the beginning of 2000. It understood that the way
to re-establish itself would be through the realisation of harmony, a synthesis between state and
market.
This is the story and these are the stakes that will be dealt with in this communication.
The matter will be dealt with in three parts:
- The first part will deal with Africa meeting economy and development and with the theory of
dependence and the centrality of the state in postcolonial construction,
- The second part will analyse the deep mutation on economic politics under the effect of
structural adjustment with regard to the structural adjustment of the “all State” and to the ‘all
market’,
- Finally the third and the last section will deal with the reconciliation between state and
market that is commonly called the developmental and democratic state at the service of a
market economy.
I. Africa’s meeting with the developments economy and with the theory of dependence:
the centrality of the state and the industries et substitution and importing
industries.
A. Africa’s meeting with the developments economy
At the beginning of their independence, the African states are confronted with generalised
poverty and structural underdevelopment. The main work to be done that was proposed in an
analysis of these problems, what caused them and how to treat them was based on what was called
the “ development economy”. This was intended to show the structural specificities of developing
countries and to offer alternatives that were different from those which are applicable to developed
countries. This school of thought emerged in favour of a context marked by two historic events (the
great depression of the 1930s and the successful industrialisation taking place in the USSR) and the
breakthrough in Keynesian thinking, that stressed the faults in the market and the need for
governments to play an active role in the development of the economy .
It was claimed that because of the rigidity affecting the markets on the poorer countries, and
their coordination problems, the heavy indstries would not be able to develop there spontaneously.

This is how the thesis of the defects of the market became the fundamental argument of the
development economy.
Paul N. Rosenstein-Rodan, Albert O. Hirschman, Arthur Lewis, Ragnar Nurske and
Gunnar Myrdal were some of the pioneers of this school.
Even if there was a large consensus on this diagnostic at the heart of the structural
economists, there was divergence with regard to the specific policies to be undertaken to end the
underdevelopment.
One of the very first to do so was Paul N. Rosenstein-Rodan (1943), who developed the idea
of a different form of industrialisation for the backward countries. In his work on the countries of the
Eastern and South Eastern Europe, he stressed the conditions that were necessary for this process, a
massive investment (big push), through international aid in favour of all sectors to escape from “the
poverty trap”. It was the complementarities between the sectors that strengthen productivity in each
sector, that production increases a higher rate than that of the utilisation of the factors. Development
is therefore not a matter of sectorial priority that is rather a matter that includes all factors:
education, health, infrastructure, must all be the subject of joint investments because it is the external
effects and the growing profits generated that are the basis of synergy and growth.
Ragnar Nurske (1953), promoted the analysis in terms of vicious circles of poverty. Poverty
leads to low income which does not allow money to be saved or which only allows a low level of
savings. The accumulation of capital that then results is therefore low, which does not allow
productivity and therefore revenue to grow. Nurkse believes that in order to break this vicious circle,
an influx of foreign capital and investment must take place simultaneously in the various sectors.
The publication by Arthur Lewis (in 1954) of Economic Development with Unlimited
Supplies of Labour is considered to be one of the founding articles of the still stumbling
development economy during the 1950s. According to Lewis, the developing countries are
characterised by the presence of a dual economy, therefore the traditional theories of growth would
have to be adapted to the specificities of the developing countries in which there is a traditional
sector (agriculture and informal activities), with a surplus of labourers, and a modern sector (the
capitalist industries) functioning in the capitalist way in which profit allows investments to be
financed. The traditional migration of labourers draws the economy towards the modern sector and
the profits generated by the modern sector create the growth and the accumulation of capital , that
finance expansion. The traditional sector, which has enough cheap labour, becomes a reservoir for
the industry.
Other authors suggest that the problem is not as much in the scarcity of capital that is rather
the lack of entrepreneurial skills that reflect institutional factors. Hirschman (1958) published
a work on the development economy called The Strategy of Economic Development, that
will become one of the basic publications in this new field of research. He declares the
specificity of those in development that leads him to reject the standard economic analysis
used to study these countries. The idea of an unbalanced growth is formulated in this

publication. Hirschman sees in this growth a succession of imbalances, because the growth is
primarily seen in certain sectors or in certain regions before it reaches the best of the area.
« Our aim must be to keep alive rather than eliminate the disequilibria of which profits and losses are
symptoms in a competitive economy. If the economy is to be kept moving ahead, the task of development policy
is to maintain tensions, disproportions, and disequilibria. That nightmare of equilibrium economics, the
endlessly spinning cobweb, is the kind of mechanism we must assiduously look for as an invaluable help in the
development process. » (p. 66).
There are links between the industrial branches.: In the case of “liaisons en amont”
(backward linkages), setting up an industry will create a demand for inputs, for example, the
automobile industry needs steel); in the case of forward linkages, the product of an industry might
become the reason for the production of another industry (drilling for oil leads to the creation of a
petrochemical channel. He therefore advises concentrating investment efforts on a limited number of
sectors, that will have been selected because they lead to the establishment of other sectors and they
create polls of growth.
Gunnar Myrdal is an economist with experience in the field. (Working on missions for the
United Nations, he has worked on surveys on many subjects, especially in the field of malnutrition
in India and racial segregation in the United States.) He is also a theoretician. He invented the term
“vicious circle of poverty”. Myrdal prefers the term “cumulative circular cause, which is one way of
saying that no equalising force can correct social inequalities and that one should not expect the
market to do this. His essential contribution was to underline the fact that the market cannot
anticipate or regulate problems on a global scale, such as mass poverty or deflation. A concerted and
global effort needs to be made and this can only be done by the State or by means of political
agreements between various players: the market is a microeconomic mechanism that is doomed to
fail when one is situated at a certain point on the scale of macro economic or macro social problems
that become a vicious circle, when other problems such as deflation, develop. Always combining the
economic approach and the social, even sociological approach, Myrdal mentions contemporary
socio-economists had actually develops an analysis of the complexity of the most important factor in
the in economy - anticipation.
 It was certainly the Argentinian, Raul Prebisch who had the most influence at the
level of ideas and policies. His thesis (1950), that he revealed at the CEPAL (United
Nations Economic Commission for Latin America) of which he became in Director in
1948, starts with the observation that in the current world system (at the end of the
1940s and the beginning of the 1950s), the periphery produces primary materials that
are exported to the centre, while the centre produces industrial goods exported to the
periphery. As technology improves, the centre withholds the profits from productivity
by distributing higher salaries and profits by depending on the powerful trade unions
of workers and on commercial institutions. On the periphery, businesses and wage
earners are lower than they find themselves in competition when it comes to offering
lower prices. Prebisch emphasises the fact that the deterioration of the terms of
exchange between industrialised countries and points the finger, while doing so, at the
transfer towards the centre of the province of technology and international trade. This

thesis contradicts the theory of positive advantages and started the Latin American
Structuralist School. To get out of this asymmetry and this independence, Prebisch
(1950) advises economic independence and industrialisation orientated towards the
internal market. This is the thesis of industrialisation par substitution of imports. (ISI).
This industrialisation has a high social cost. That is why one must plan it. The State
must do it.1
B. Industry by substitution of imports (ISI) and the centrality of the State
When most of the African countries acceded to independence, they adopted the vision of the
Economy of Development and they decided to implement an industrial policy of substituting
imports. This started with the production of consumables that had previously been imported. The
idea was that the local market was using these products and that a base was necessary for launching
an industrialisation programme. It was anticipated that the industrialisation process would continue
with the later production of intermediary products and would then continue with capital goods that
would be needed for the first generation of consumables.
It was also anticipated that the local production of consumables, over a period of time, could
strengthen the national capacity and contribute to overcoming the difficulties of the balance of
payments.
1
During the 1960s, the CEPAL economists are going to develop and extend the structuralism mentioned by Probisch
in order to create a basis for the theory of dependence. The best-known authors in this regard are Celso Furtado (the
“Development and Underdevelopment. 1961” and Andre Gunder Frank (“ The Development of Underdevelopment”).
1966, “ Capitalism and Underdevelopment in Latin America” 1967,). Samir Amin was just behind them during the
1970s with his reference work , “Accumulation on a world scale”. (1970)
The setting up of the ISI implied public support and it is only applied here to national companies
vis-à-vis foreign companies in competition, the consideration being that the industries that were
being started needed temporary protection before becoming competitive. In addition to the
national specificities, the ISI policy including a number of elements2
:
- limiting imports to intermediary goods and capital goods that he Would be needed by the
ISI.,
- the extensive use of tariff and non tariff barriers in commerce,
- The over evaluation of exchange rates in order to facilitate the importation of goods
required for the ISI,
- Subsidising of interest rates to make domestic investments attractive,
- Direct participation of the State in industry,

- The provision of direct loans to companies in the supply of currencies to meet the
importing needs of the ISI.
The State was in charge of central coordination and the allocation of resources.3
As we have
seen, this intervention is justified by a number of needs: the need to transform the structure of the
economy by moving low productivity labour to the sector of higher productivity4
, ending the terms
of exchange and making up for the absence of a local bourgeoisie able to manage the process..
Therefore this first phrase is characterized by the planning of development: during this period
at least 52 African countries were giving the development plan.
C. The crisis of the ISI and the centrality of the State
This policy instituted immediately after independence made it possible to make significant
changes in the economic structure inherited from colonisation and to reach a respectable level of
growth. In fact, this is how the weight of manufacturing activities in the GDP rose from 6,3 % in
1970 to 15,3 % in 1990. As for growth, it was at an average of 4 % during the 15 years after
independence.
2
See Mkandiware T. and C. Soludo (1999)..
3
Meier, G. (2000).
He 4
Cf Arthur A. Lewis, op. cit.

- la création d’opportunités de rentes et de corruption qui ont augmenté les coûts
de
However, commercial deficits, the deterioration of terms of exchange, considerable public
deficits, company costs linked to the inefficiency of public enterprises, and the increase in national
of all led to national reserves melting away in African countries. The two oil shocks of 1973/1974
and 1978-1979, that drastically reduced the revenue of the state and then the interest rate from hell at
the beginning of the 1980s when the American government introduced a restrictive monetary policy
in an attempt to reduce inflation, and at the same time, African countries were being called on to
replay their debts all contributed to making the financial situation of the continent worse. From that
time on, it became more and more difficult for them to repay their debt, and even to pay for their
imports.
The hopes that there would be an improvement in the industrial field were shattered almost
everywhere in Africa, except in South Africa and in Mauritius. In fact, it became clear at the end of
the 1970 that the substitution of imports and the plethora of inefficient public enterprises could not
continue and had become an insurmountable constraint. External debt reached 42,8 during the years
from 1976 to 1980 and culminated at 70,4 % during the 5 years from 1971-1975. Direct foreign
investment was too low – it was limited to 1,9 % of GDP during the entire period - to block its
negative changes.
The immediate reasons for the failure of development managed by the state in the number of
African countries (and in Latin America) can be considered to be largely economic: public
enterprises were becoming highly inefficient, and were employing a much greater number of wage
earners than comparable private companies and were not able to supply the goods and services at
reasonable rates; the accumulation of external debt at very high levels; poor infrastructure in spite of
public investment; a highly of dependence on state revenue vis-à-vis the income from external trade
and alert level of generation of internal tax resources.
By overprotecting industries being created vis-à-vis competition from imports, African
countries had also added more costs to their economies:
- The high costs of importing substitution products in relation to world prices and
distortions caused by the incentives was causing the economy to consume a bad mix of
products from the point of view of economic efficiency,
- The fragmentation of the markets due to the fact that there was production on a low scale
for protective products,
- The reduction of competition with regard to the reduction of competition vis-à-vis the
exterior and the granting of monopolistic powers to local firms whose owners were
politically well connected,
- The creation of opportunities for income and corruption which increased the cost of the
transaction.

deThe World Bank is going to appoint a team of economists under the leadership of American
Elliot Berg to make a diagnosis of the economic situation in Sub Saharan Africa and to make
recommendations. The report which was drawn up in 1981 (“Accelerated Development in Sub-
Saharan Africa: An Agenda for Action”) will seem to be unequal; it shall be considered to be the
work of those who have been the most influential in Africa for the last 75 years.
The Berg report supports the fact that the economic and industrial performance of Africa has
been poor because of inadequate policies: an overvalued exchange rate; controlled interest rates, and
inappropriate encouragement of industry at the expense of agriculture. Therefore the states do not
have the intervening order to promote industry by means Of deliberate and discretionary
intervention.
Blocking out external factors that affect the efforts of the continent, such as the deterioration
in terms of the exchange of primary products and the impact of policies on aid, including those of
the World Bank itself, the report identified political errors of African governments as the source of
the malaise and calls for a strong dose of reform: the adjustment of the exchange rates, stressing the
importance of agricultural exports and any increase in prices for agricultural producers, the reduction
of subsidies paid to urban consumers, the reduction of the importance of the bureaucracy, the
privatisation of inefficient public enterprises and the improvement of the management of the public
sector.
II – From “ all state” to “all market”
A. The generalisation of structural adjustment plans and the reign of the Washington Consensus
The strength of the entry of the Bretton Woods institutions into the debate on development will
be accompanied by serious transformation, in thinking and in practice in the World and in African.
A new era of development is open at the specialists are going to assimilate into the “ Washington
Consensus” this consensus will once again bring into this area the Theory of Development and the
specificity of underdeveloped societies. It is a matter of taking revenge for the neoclassical theories
that, on the basis of the failure of the development strategies and the crisis with regard to the theory
of development that they suggest, they extend the field of application of their analysis framework to
underdeveloped societies.
From the theoretical point of view, the Washington consensus will once again implicate any
form of state intervention in Washington and proclaim the supremacy of the market in the allocation
of resources. This discussion is connected to the standard theory. Professor G. de Bernis defined
them as “a process of reorganisation of productive structures of the countries concerned in order to
ensure that there is balance in the balance of payments balance in the framework of international
economic relations liberated from all restrictive policies.5”
There are two parts to the PAS, one for the standardization of micro-finance and the other
one is for the adjustment of structures. This stabilization part is intended to reabsorb in the short term
the imbalance in the balance of payments. It gives privilege to reducing the demand and the

deorientation of what is offered to external markets, while the adjustment part aims at changing
productive structures in the countries concerned in order to ensure equilibrium in the balance of
payments in the framework of international economic relations that do not have any restrictive
policies.”5

comparatif pour critiquer les choix d’import –substitution ou d’industrialisation liée au
marchéTherefore disengagement from the State, regulation of the market and competitive advantages will
be the key words during the 1980s of the Washington consensus.
In the place and position of strategies and development plans, there will be structural
adjustment plans to which the African countries will be submitted. Prof. G. de Bernis has defined
them as “a process for the reorganization of productive structures in the countries concerned in order
to ensure the equilibrium of the balance of payments within the framework of international economic
relations free of all restrictive policies and with equilibrium in the balance of payments.5”
The PAS consists of two parts: one to stabilize micro finance and one for the adjustment of
structures. The stabilization section works to stabilize the balance of payments in the short-term. It
concentrates on reducing the demand and the orientation of the offer to external markets and the
adjustment section concentrates on changing the structure.
The reforms recommended by the PAS concern notably:
- the deregulation of interest rates,
- the liberalization of commercial trade,
- the privatisation of public enterprises,
- the cancellation of subsidies,
- devaluation .
One of the main objectives of the PAS was to reduce the role of the States in industrialization
and in the process of development and to allow market forces to have more power to allocate
resources. It was believed that the markets are more efficient than the State in the allocation of
resources and that the role of the state should be limited to offering an environment in which the
private sector could flourish.
5 “
Debt-adjustment – adjustment - development : a circle that is virtually impossible to find”, UNESCO, February
1989, p. 2. Quoted by Hakim Ben Hammouda (1999 : 89).

B – The consequences of implementing adjustment plans
The critiques that have been formulated by numerous authors6
and institutions agree that
adjustment plans have placed Africa on a low growth path and that two decades, perhaps even a
quarter of a century, of development have been lost.
Average annual growth rate of GDP per person
1960 - 1969 1970 - 1979 1980 - 1989 1990 - 1999 2000 – 2008
The entire world 3,4 2,1 1,4 1,2 1,7
East Asia and the Pacific
Asie de l’Est et Pacifique
1,3 4,4 6,1 7,1 8,0
Europe and Central Asia
Asie centrale
- 2,0 5,8
Latin America and Car. 2,4 3,1 - 0,8 1,5 2,3
North Africa / Middle East
AfriqueNord/Moyen Orient
2,8 - 0,4 1,8 2,7
South Asia 1,8 0,3 3,2 3,3 5,4
Sub-Saharan Africa
Asour cefriqu eee Sub-
Saharienne
2,0 0,7 - 1,0 -0,5 2,4
Source: Sundaram et al., 2011, p. 2.
After a modest growth of 0,7 % per year and per person during the 1970s, the real revenue
dropped 1,0 % per year during the 1980s and 0,5 % during the 1990s. Growth in primary goods
started again after 2000.
Efforts at diversification broke down and the industrial base of the region was eroded. The
importance given to the liberalisation of the markets led to bankruptcy for numerous companies.
This led to the destruction of the local industrial base in spite of the potential that the technology of a
number of a number of local enterprises would take off again. In other words, the attempts to
improve the capacity of structural adjustment plans, to make those companies more competitive, to
boost growth and to prepare the ground for sustained economic growth does not succeed. As has
been the case with the ISI, the adoption of the PAS did not have the desired effect: there had been no
structural transformation and the diversification of African exports had not taken place.7
.
According to the UNIDO/UNCTAD (2011) special report, the proportion of activities by
African manufacturers rose, passing a low point of 6,3 % in 1970 at a peak of 15,3 % in 1990. Since
then, however, the fall has been continuous and significant, this share dropping to 2,8 % in 2000 and
to 10,5 % in 2008. It must be made clear that this drop took place in all of the sub regions of the
African continent. Africa continues to be marginalized in world production and trade of industrial
products.
6
Sundaram and von Arnim (2008) ; Mkandawire (2005) ; Soludo, Ogbu and Chang (2004) ; Stein (1992) ; Sundaram,
Schwank and von Arnim (2011).
7
Voir UNCTAD, Economic Development in Africa Report (2011 : 12).

12
This rose from 1,2 % in 2000 to 1,1 % in 2008. During this period, the development of
countries in Asia rose from 13 to 25 %.
The social costs are a sad story. The reduction of the institutions of the public sector and the
massive number of privatisations lead to the destruction of a considerable number of jobs, while
budgetary restrictions compromised the supply of basic social services and the development of
human capital. “Most of the organs of the United Nations that stressed the importance of the last
economic report on Africa” (2012:73), reproached the PAS for not having taken the human done
engine into account.” It is not only growth that causes a regression in.the distribution of income. In
numerous countries in the region also dropped: 20 % of the poorest countries saw their income
decline by 2% per year between 1980 and 1995, that is by more than twice the national income. Part
of the population is living on less than one American dollar per day. In the least developed countries
of Africa, this increased moving up from 55,8 % in 1965-1969 to 64,9 % in 1995-1999.8
At the bottom of this poverty and this regression, a number of authors and institutions for the
believe that this has been caused by the policy advised by the institutions of Bretton Woods.
More fundamentally, it was the planning of the development process itself that was broken. “had
been demonised to such an extent”, according to the Economic report on Africa (2011 : 93) that it
had left out almost all the ministers of planning in the developing countries in the framework of
conditionality impose on those countries because of the PAS during the 1980s and 1990s. The report
adds that in the framework of the PAS, if she had that the essential requirement was to manage the
African countries in such a way that they would reach financial equilibrium in the short-term and
not to create transformation and development.
III – The reconciliation between the State and the market: the developmentalist and
democratic state and the economy of the market
A. A 21st-century structuralism, a new framework for thinking about development and the
relationship between the state and the market: Justin Lin (2010)
Given the international experiences and the theoretic advances, Justin Yifu Lin, Vice is
President and Chief Economist of the World Bank, proposes revisiting the development economy to
bring it in again, the objective being to create a new framework to think about development and the
relationship between the state and the market.
8
See UNCTAD (2002), tables 19 and 20.

13
a) The conceptual framework proposed
The conceptual framework in which this will be attempted is based on the following three
points:
- the factorial allocation of each economic structure that develops from one development to
another is an imminent threat to them. As a result, the optimal industrial structure of an
economy will be different at different stages of development;
- Each economic development stage is at a point inserted in a continuum starting with
agricultural economy with a low income and ending with an industrial economy with a
high income. There is no dichotomy between the two stages of development (“rich”
versus “poor”, “developing“ versus “industrialised”);
- At each stage of development, the market is the base mechanism for the effective allocation
of resources. However economic development as a dynamic process needs industrial progression in
the corresponding improvements in the “hard” and “soft” infrastructure. Each new stage involves
important externalities with regard to the costs of the transactions for companies in the income from
investment capital.
“Hard infrastructure” includes highways, telecommunications, ports, energy and determines
the cost of the transaction in order to obtain the inputs and to obtain the outputs as well as the size
and the extent of the market (which in turn, determines the degree of the division of labour), while
the “soft infrastructure” includes financial regulation (which affects the facility with which the
company has access to external finance), the legal framework (which determines the costs of the
establishment and the performance of the contracts) and the social networks (Mr. Chairman the
access to the company, to finance, to the markets). As a result, the funds for infrastructure determine
the cost of the transaction to the companies and the degree to which the economy approaches the
frontier of production possibilities at any time. Even if the companies can generally control their
production costs, they have little latitude with regard to the main components of their transaction
costs, which are largely determined by the quality of the soft and hard infrastructure that is
essentially provided by the State.
As a result, the State must play an active role by facilitating the industrial progression and by
improving the infrastructure, while the markets must have the prerogative of allocating resources.
The role of the State does not only consists of producing infrastructure or facilitating its realisation.
It also consists of putting an end to existing distortions. When should this be done? This important
matter, admits Lin, has not been sufficiently studied. The answer is whether it is desirable to adopt a
gradual pragmatic approach.

14
b) resemblances and divergences between the “old” and the “ new” structuralism
When it comes to similarities, the two structuralisms find their source in the structural
differences between developed countries and developing countries and both of them recognize the
active role of the State in facilitating the passage from an economy in a weak stage of development
to a higher stage of development. The differences are in the aims and the modalities of intervention
by the State.
The “old” structuralism makes a plea for policies that are in opposition to the
policies that are against the comparative advantage and recommend that the developing countries set
up capital intensive industries through administrative measures and a price distortion. In contrast, the
“new” structuralism stresses the central role of the market for the allocation of resources and
recommends that the States play of role of facilitator in order to assist the companies in their
industrial ascent by taking charge of the externalities and the coordination.
This difference in the advocacy and the recommendations is derived from reading about the
source of the structural rigidity: the “old” structuralism believes that the faults in the market that
make it difficult to set up capital intensive in the developing countries are exogenous because they
are determined by incorrect prices (distorted by the immobility of the factors, the existence of
monopolies, or by the perverse response on the work to price signals factor), while the “new“
structuralism believes that this difficulty experienced by the developing countries is due to their
factorial grants; it is endogenous to them. It is a scarcity of their capital and/or the low level of their
soft and hard infrastructure that makes the passage to non-capital intensive industries not profitable.
The “new “ companies believe that the role of the State structuralism in the diversification
and the industrial upturn should be limited to the supplying of information, the coordination of
investments between companies in the same industries, the compensation of information
externalities for the pioneer firms and to the care provided to the news industries through the
incubation and the encouragement of direct foreign investment. The State must also take on its role
of leadership in order to improve the infrastructure and to reduce the transaction costs of individual
firms and to facilitate the process of industrial development.
B. The State and the market: a group of institutions (North et al., Acemoglu et al., Rodrik)
The subject of the institutions has been at the top of the list of the pre-occupations of
economists for the last twenty years. The Nobel prize won by Douglas North in 1993 is proof of this.
The successful example of the Asiatic economy at one end and the collapse of the Russian economy
at the other end have shown that the role of the State is fundamental to promote development and
that the market is not born from the destruction of the state because the market itself is a set of
institutions that result from a long and a complex political process.

15
North was fired by their use different writers each of whom tackled in his own way the
question of the institutions from the point of view of economic development; the best known were
Dani Rodrik of Harvard University and Daron Acemoglu, Simon Johnson and James Robinson from
the Massachusetts Institute of Technology.
According to, North (1990: 97), “The institutions are constraints established by humans that
structure political, economic and social interactions. They consistent of informal constraints
(sanctions, taboos, customs, traditions, and codes of conduct) and formal rules (constitutions,
laws, property rights). Throughout history, the institutions have been used by human beings in order
to create order and to reduce exchange uncertainty. Together with the standard constraints of the
economy, they define the range of choices, and by doing so, they refine the costs of transaction and
production as well as the profitability and feasibility of being involved in economic activity. They
change progressively, linking the past with the present and the future. As a result, industry is largely
the result of institutional evolution in which the performance of economies can any be understood as
part of sequential history. The institutions provide the structure of incentives to an economy and as
this structure develops, it indicates the direction of economic change towards growth, stagnation or
downturn.”
In his book on reference (1990)10
North states that the institutions on the determinants of the
the long term performance of economies and that the countries of the third world are poor because
the institutional constraints defined all the payments for economic and political activities that do not
encourage productive activity,
North also said that the incapacity of societies to ensure the execution lower-cost contracts is
the most important source of historical stagnation as well as current underdevelopment because
property is not secured and there are no contractual rights.
In another family of works on social order11
, North was working with two other writers
(professors in polital sciences), Joseph Wallis and Barry R. Weingast H, at an historical lecture of
these orders. Their ambition in this regard is to produce a conceptual framework explaining how,
during the course of the last ten millenniums, societies have used institutions to limit and to contain
violence.
9
Translation by the author,
MBR.
10
Institutions, Institutional Change and Economic Performance. Cambridge Univ. Press
11
Violence and social orders, a conceptual framework for interpreting recorded human history, New York, Cambridge
University Press, 2009. The résumé and the announcement of this book were made in a publication called “Violence and
the Rise of Open Access Orders” dans Journal of Democracy, volume 20, Number 1, January 2009.

16
According to North, Wallis, and Weingast, at the beginning there was a first social order
that they called “the order of predation” belonging to the hunters and gatherers who were living in
small groups of between twenty five and two hundred. As the size of human societies increased, the
natural state or the “limited access order” (OAL), between the fifth and the tenth and millenniums
also increased. The increase in the size or the company was by means of hierarchical personal
relations between powerful individuals. Personal relationships among the elite formed politcal
relationships and became the basis of individual interactions. Natural states were managed by a
dominant coalition: those who were outside this coalition had limited access to the organizations,
privileges, activities and resources of value.
The orders with open access (OAO) have only emerged recent, during the 19th century and
are associated with the beginnings of modern economic and political development. Personal identity
in the OALs becomes defined by a group of impersonal characteristics. The categories of individuals
that are emerging are often called citizens. These impersonal categories of individuals interact in
various social spaces without anybody needing to know the identity of their partner. This capacity to
form organizations that society as a whole supports is open to any person who puts together a group
in accordance with the minimum number of impersonal criteria.
Because of their variety, the natural states have four elements in common that characterize
them as “a limited access model. These are a community that is growing slowly and that is
vulnerable to shocks; b) Political regimes without the generalized consent of those administered;
c) a smaller and more centralized state; d) a predominance of social relations organized in a
personal way, based on privileges, a social hierarchy, applicable laws on a case-by-case basis, fragile
proprietary rights in the presupposition that all individuals are not equal.
The order of open access is described as the monopoly of violence by the State or the
Constitution of the Weberian state. In contrast with the model of limited access, the free access
model is defined as a) a political and economic development economy; b) an economy that
registers much less negative growth; c) a diversified and vigorous civil society with a large number
of organizations; d) a more extensive and more decentralized state;; e) a fabric of impersonal
social relationships including the rule of law, secure ownership rights, justice and equality, in which
all individual individuals are treated in the same way.
According to the authors, this classification is also applicable to the analysis of social orders
in contemporary societies; today, only 25 countries, that is 15% of the world population, live in an
social order with open access, while the 175 other countries, that is 85 % of the rest of the world
population, is ruled by natural states or by a social order with limited access.
How does societies move from one model to another model, from a model with limited axes
to an ordered model with open access? The transition process passes through two stages:

17
first stage consists of setting up institutional provisions allowing the elite to establish internal
impersonal relationships ; the second stage consists of the extension of the impersonality to the heart
of the elite and of the institutionalisation of opening access to organizations. The conditions that
make it possible to develop impersonal relationships inside the elite organization are known as
“threshold conditions”. These three conditions are: the application of the rule of law inside the elite;
the creation of living, perpetual, elite organizations, and finally, consolidated, political control over
the army.
When relationships inside the elite organizations become impersonal, new opening
possibilities become possible.
The OAO provides citizens with policies on an impersonal basis with regard to public
property, social insurance problems on a large scale, poverty reduction programmes aimed at those
who are poor as defined by impersonal and observable criteria. The OAO supplies goods and public
services in an impersonal manner and prevents those who have political power from withdrawing the
the benefits from those whom they seek to manipulate. A supported democracy does not seek to
grant open access only to politics, but also to the economy.
It is not sufficient to transplant institutions of the order of open access in natural states to
support political and economic development. In fact, if these institutions are imposed on societies by
means of international or national pressure without being compatible with established beliefs, with
regard to economic, political, social and cultural systems, they are obliged to function less well
than the institutions that they will have to replace. Even worse, if these institutions undermine the
political arrangements that ensure political stability, they risk provoking disorder and making the
situation worse.
In a recent article on developing countries12
, starting with this conceptual framework, Barry
R. Weingast criticises the thesis in fashion internationally at the moment according to which
developing countries are ill and need an appropriate medicine with regard to political reform. This
point of view does not perceive the problem correctly because natural states are not sick. These
states have succeeded as their income producing and privilege producing public policies and their
company policies have been structured to resolve the problem of violence. The attempts to create the
rule of law, democracy and market reform do not succeed because they do not take into
consideration the logic of the natural state. The characteristics of this state model are: violence, the
lack of perpetuity, and they are not impersonal. These three characteristics prevent the reform
process and the creation of the rule of law, of democracy and the markets of natural states. In brief,
12
Barry R. Weingast (2011): “The Failure to Transplant Democracy, Markets, and the Rule of Law in Developing
World”. in The Annual Proceedings of the Wealth and Well-Being of Nations.

19
For these reforms to succeed, the State must exercise considerable permanent control over violence,
ensure that these organizations continue to exist and be able to treat their citizens on an impersonal
basis..
On the other hand, Dani Rodrik believes that there is no group of predetermined institutions
which will meet the needs of all societies, but there is consensus among development economists
about at least five types of institution based on the conditions that are necessary (but not sufficient)
for rapid economic progress. These are:
- the property rights and contracts that are obligatory and that are institutions for the creation
of the market,
- the regulation institutions that are institutions to regulate the market,
- the macroeconomic stability institutions that are institutions to stabilise the market,
- the social insurance institutions : which are institutions to legitimise the market,
The institutions to manage conflict - these are institutions to legitimise the market,
The market economies need the institutions because they are not self creating, self regulating,
self stabilising and self legitimising.
Acemoglu and his colleagues (2001) believe that the fundamental cause of the differences of
the level in the evolution of institutions are caused by the differences in the evolution of their
institutions, particularly ownership rights. These have historical roots, namely the manner in which
the colonizers colonized the countries during the 17th and 18th centuries. The model of institutional
development that they are proposing is that the mortality of the colonizers determined the degree of
colonization, that the degree of colonization determined the type of the first institutions and that
these first institutions determine the current institutions and can explain the economic performance
of today.
The modelling is based on three fundamental premises. Firstly, there were different
colonization policies that created three different types of institution. At one end, in some countries
(in Africa in particular), “extra active states” created as many reserves as possible that could be
transferred from the colony with the project. Private property rights had not been established and the
colonizers did not colonize many of them. On the other hand, in countries like the United States or
Australia, the Europeans colonised a large number of states called being European institutions by
placing particular importance on property rights. The institutions created during the colonial period
are still in existence after independence.
Therefore if Africa is poor, it is not because of geography but because of the weak
institutions inherited from the past due to the establishment of extractive states by the colonial
powers.
We reach the same conclusions from all the work on the institutions: the fundamental cause
of underdevelopment (and of development) is the absence of (or the presence of) institutions that is

20
generally applicable in Africa.
C. The developmentalist state and the market economy
The concept of the developmentalist state is linked to the name of Chalmers Johnson (1982), who
used it in order to describe the rapid industrialization and the exceptional growth of Japan after the
first world war on the initiative of the state. Beyond this miracle that he is studying, there is, he says,
“a rational interventionist State that has fixed and clear economic and social objectives13
.
The major characteristics of the developmentalist state are: autonomy, institutional capacity,
development planning and finally, supporting the emergence of a class of national entrepreneurs.
The autonomy of the State
The autonomy the State means its capacity to formulate policies independently of the existing
social forces, but that serve the interests of the country as perceived by those in command. In order
to do this, the State must have powerful means of producing information, and of analysing it, and, on
this basis, so that it can check and formulate its policies in privacy without being held hostage by
particular groups. The economy of the state is antithetic to the capture of the State. The economy of
the state can not be complete because the State is the product of the society. It is embedded in it and
constitutes a site of articulation and realisation by social forces. As such, the states cannot be
“suspended” above the society, but it regulates and promotes the interests of groups in accordance
the national programme for the development of the country.
1
The Economic Report on Africa 2011 presets a good synthesis of the developmentalist state.
Chapter 5 deals with this matter.
The following paragraphs are essentially a summary of this chapter.

20
Peter B. Evans (1995) uses the concept of the “embedded autonomy” of the State in order to
describe a situation in which the State’s machinery is managed by a sophisticated technocratic elite
that achieves the difficult balance between “being embedded” in the private sector (and, in so doing,
assessing the needs of the economy) and being sufficiently autonomous so as to prevent a “seizure”
by the business elite that is on the lookout for annuities and that prefers the easy life of favours
granted by governments to the rigours of market competition. The State enjoys relative autonomy
but responds to and coordinates with role players and non-state institutions, specifically the private
sector and civil society. The examples of Japan and Korea demonstrate that in the place of total
autonomy, the State constitutes a compact network with the corporate sector and with civil society
and presents itself as the “guarantor” of the interests of these groups and within the framework of the
broader national economic development objectives.
Presented in such a manner, the situation is radically different from developing States, Africa
in particular. Here, admittedly, during the first years of independence, development managed by the
State was undertaken with results that were initially promising in economic as well as social terms,
but with the exception of Botswana, there were hardly any success stories due to the predatory
nature of many States. In examining the nature of the latter, Matthew Lockwood (2005) says that the
response of the regimes to the instability of cronyism (itself an unavoidable consequence of the
dynamic of rapid decolonialisation) was to centralise and beaurocratise power. Most of these
changes came about during the 1960s. In some countries such as Nigeria, Sierra Leone, Liberia and
Somalia, the burgeoning crisis of cronyism was not resolved; the leaders did not control the
foundation of cronyism and did not bureaucratise; consequently, the system became more and more
unstable. Political competition and the extent of the pillaging had a devastating effect when countries
had mineral resources.
It is the prevalence of cronyism within weak states and of neopatrimonialism within states
that are not as weak that prevented Africa’s development. In summarising 40 years of African
history, the African Commission comes to the same conclusion according to which, “A major fact
explains the difficulties of the continent. It is the weakness of governance and the absence of
effective States”.14
Institutional Capacity of the State
The capacity of public institutions particularly that of bureaucracy, is essential in the
economic performance in a developmental state. In dealing with the Japanese miracle, Chalmers
Johnson (1999) suggests that it is founded on four fundamental aspects.

21
14 Africa Commission (2005:24). Quoted by Duncan Green (2012: 40).

24
The first aspect of the model is the existence of an elite bureaucracy that is restricted, inexpensive and
made up of the most competent managerial talents in the system. Firstly, the responsibilities of this
bureaucracy should be to identify and to choose industries that that must be developed; then, to
identify and to choose the best means of rapidly developing the chosen industries (a policy of
industrial rationalisation) and finally, to supervise competition in the sectors that are considered to be
strategic so as to guarantee their good health and effectiveness.
The second aspect is the existence of a political system in which bureaucracy has enough
room for manoeuvre to take the initiative and to operate.
The third aspect of the model is perfecting the compliance of methods of intervention in the
market by the State.
.
The fourth and last aspect of the model is a pilot organisation, such as Japan’s MITI
(Ministry of International Trade and Industry). The agency that controls industrial policy needs to
combine, at the very least, planning, energy, domestic production, international trade and a part of
finance. The key features of the MITI are its small size, its indirect control of government funds, its
think tank function, its vertical offices for the implementation of industrial policy on a
microeconomic level and its internal democracy. It has no equivalent in any other advanced
industrial democracy.
The competence of bureaucracy competence is a distinctive sign of developmental states.
There is a determining factor at the heart of the administration’s competence: recruitment based on
merit and predictable rewards throughout a career.
The concept of state development means that each party makes use of the other in a mutually
beneficial relationship so as to attain the viability and developmental goals of companies. When the
developmental State is working well, neither State officials, nor private sector managers prevail in
relation to each other. The State is a ”catalytic” agency and the managers respond to the positive or
negative incentives provided by the State.
Bureaucracy advises the political Executive, formulates and carries out public policy.
Professionalism, discipline and technical qualifications are fundamental issues when it comes to
competence and administrative capacity.
The bureaucracy or the bureaucratic elites are not the only ones to intervene in the process of
managing development. There are other institutions and role players who support the developmental

25
State. These are, amongst others, the Central Bank, financial regulation authorities, regulation
authorities and legal authorities. Their capacity is directly related to the performance of the State.
Planning and Development
Development planning consists of determining national priorities, setting objectives,
formulating strategies, facilitating coordination and establishing evaluation and monitoring
mechanisms in order to attain long and short-term development objectives. The Economic Planning
Board, EPB, in South Korea, the MITI in Japan, the Economic Planning Unit (EPU) in Malaysia and
the Economic Development Board (EDB) in Singapore, are considered as the brains trust and the
drivers of the economic miracle.
These agencies are able to transform national policies into development programs. They have
an ample supply of highly qualified and competent senior managers. They are positioned at a
distance to corporate interests so as to avoid the seizure and derailment of development projects.
They provide the State with a long-term vision of development as well as the ability to act in a
coherent manner as a collective entity.
Support for the Emergence of a Class of Domestic Entrepreneurs
A class of domestic entrepreneurs is a prerequisite for the accumulation of local capital and
for the development of a market economy. The developmental state is making a deliberate effort to
produce and develop a class of domestic capitalists that will drive industrialisation and growth. In
many countries in East Asia family companies were the norm but, thanks to the active support of the
State, they have been transformed into international conglomerates and transnational companies. The
development of large companies such as Zaibatsu in Japan and Chaebol in South Korea is closely
linked to the emergence of this bourgeoisie.
D. The Developmental and Democratic State and the Market Economy
A number of authors, all supportive of the notion of the developmental state, consider that its
formulation has remained limited and that the relationship between the state and society has been
reduced to the relationship between the state and the business milieu, an elite coalition. Edigheji
(2005) blames the initial conception of the developmental state for not having given enough value to
its democratic dimension. He goes on to say that this serves as a partial explanation because some
intellectuals considered the repressive nature of the state as one of the factors that allowed for its
developmental capacity building. However, what is of critical importance is the capacity of the State

26
to use its autonomy to consult, negotiate and forge consensus and cooperation with labour and
management in order to carry out the tasks of economic reform and of adjustment. In doing this,
cooperation becomes the central element of the developmental State.
That is why Edigheji presents the concept of “inclusive embeddedness” that requires a
programmatic relationship between citizens and political parties, in opposition to cronyism. The
developmental and democratic state is a state that forges broad programmatic alliances with trade
unions, the business world, civil society organisations and ensures popular participation in
governance and processes of transformation.
If the existence of a competent bureaucracy is a fundamental condition of the developmental
State, the political capacity that gives the State the power to act legitimately in such a way so as to
ensure transparency and accountability is just as important. It is this political capacity that
strengthens the capacity of the developmental State to mobilise society and to build consensus
around its project. When one considers the developmental State, one must consider its political
dimension rather than reducing it to its economic aspects.
In turn, the democratic dimension is not enough to describe the democratic and
developmental state. In fact, as Rita Abrahamsen (2000) strongly emphasises, even though the
burgeoning democracies have given free rein to political expression, notably a critical domestic press
and social demonstration movements, the political influence of citizens has been very limited. More
specifically, demands for the improvement of living conditions of the poorest categories of the
population have in principle been set aside and ignored. In this sense, these democracies are socially
exclusive. They accept political parties and elections, but are not able to respond to the demands of
the majority and to include the masses in any way whatsoever.
The democratic and developmental state is a “social state”; the economy it builds is a social
and inclusive economy. The market has all its rights; it is the source of wealth creation, it must be
promoted and supported; social rights also have their place here. The democratic and developmental
state’s agenda includes: the eradication of absolute and relative poverty; correcting the glaring
inequalities of social and economic conditions (between the sexes, regions, classes, ethnic
groups…); the provision of personal benefits to cover social insurance (health, unemployment,
retirement); programmes to transform and improve workers’ skills and to guarantee promotion
throughout their lives. Social policy fulfils four functions: protection, production, reproduction and
redistribution.
The democratic and developmental state puts specific institutions in place in order to attain
its goals because the skills required for industrial transformation and for adjusting to international
economic conditions are different from those that are required in order to supply basic goods and

27
services. The “distributive and redistributive” capacity requires coalitions that are politically and
socially much more complex and much broader than those that are required for industrial
transformation (the “transformative capacity”).
In the political space, public policy has often become a domain for professionals. “When
politics becomes the property of professional elites, of bureaucrats and of consultants,” emphasises
Harry Boyle (2004), “the majority of the population is marginalised from the serious work of public
affairs. The citizens are reduced, at the very best, to the supporting role of “protesting consumers”.
“Apathetic citizenship” must be prohibited. Because society has divergent interests, groups that are
socially marginalised must organise themselves in the form of democratically administrated
voluntary associations; the state must encourage them to do so, engage in dialogue with them and
consider them as true partners.

27
CONCLUSION
This research set out to study the role of the State and of the market in building African
economies. At the end of this general survey that was as theoretical as it was empirical, one has to
admit that one still needs to wait for this building to take place.
After a promising start to the building of the continent once independence was achieved, it
did not take long for African economies to experience great difficulties which stopped their
development. Instead of raising these economies, the therapies to which they were subjected plunged
them into a long recession that lasted roughly a quarter of a century, so much so that after forty years
of independence, they almost found themselves starting from scratch once again.
Africa tried out the State and the market in large doses. But it was neither really about the
State nor the market.
Because, contrary to those who advocated “shock therapy” – the international financial
institutions at the height of their conversion to neo-liberalism that lavished drastic measures on the
continent in order to “reduce the size of the state” and, as a consequence, give birth to the market
from its ashes - the market economy did not emerge.
It has become more and more evident that the market is not directly opposed to the state, but
constitutes a prolonged, complex and difficult construction; a range of institutions that Africa has
hardly begun to set up.
As for the state itself, even in its hour of glory, it has been qualified in several ways in order
to indicate that it is not a neutral apparatus that can be positioned above society in order to ensure
order through the monopoly of legitimate violence, but rather an instrument in the hands of
privileged minorities. A crony, neopatrimonial, predatory state; the descriptions vie with one
another to concur that appearances are the only rogue form of the State.
The state against the market, the market against the state, this has been the sequence of post
colonial Africa. For about ten years, or indeed fifteen, on an African scale as well as on an
international scale, revision is underway. The understanding that the market is at the heart of wealth
creation, that it must be promoted largely by the state, that building the institutions that structure it
and of which it is comprised is a long and complex task, has made rapid progress

28
In the same way, the understanding that the State is not a detached abstraction, an entity
“unto itself”, a uniform instrument, is growing, specifically with Africans.
The “developmental” State, the “developmental and democratic” state, these concepts are being
constructed and their contents are being enriched.
During the last fifteen years, or during the past two decades at the very most, great strides
have been made in being able to look at development, the state and the market in a more appropriate
manner. The two most important breakthroughs concern institutions on the one hand and the state on
the other. Actually, the two are connected, they overlap: the institutions refer to the state, the state
refers to the institutions.
What is remarkable today is to see African thinkers that can now be counted amongst the
most influential. And for the first time to see a state that plans to build a democratic and
developmental state in a deliberate and conscious manner in order to succeed in developing the
prosperity of its people. This state is South Africa.
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