Introduction
State intervention can lead to dramatic alterations of wealth if done poorly as seen in autocratic nations. Conversely, they may explain why certain countries are more economically powerful than others. These divergent views will be examined with regard to a series of failed and successful nation states.
Existence of Bureaucracy
Weber (15) argued that the state has a crucial role to play in economic development because of bureaucratic systems. In other words, these countries have a series of ethical rules and maxims that must be followed in order to prosper. The individual will only do well if he or she becomes part of these systems rather than if he/she chooses to pursue his own individualistic needs. Usually, such nation states have an education system that is quite thorough.
Only those who pass through this rigorous education system will get opportunities to serve in particular careers and it is observance of those career paths that explains their economic success. Weber postulates that the central function of the state as a source of rules and norms is the reason why most entrepreneurs in Germany are predominantly protestant. The latter group opted to follow set rules that placed them where they are.
Additionally, because members of this group are born into wealth, they are likely to be inculcated into the right kind of education system. They then establish social ties that will be responsible for perpetuating their continual capitalist success as adults. Conversely, their Catholic counterparts preferred to stay in comfort and did not thrive in risk taking.
In fact, Weber’s assertions concerning the role of the state in creation of bureaucratic systems can be backed by yet another country in the world today; Japan. This country is characterised by a series of personal networks that are linked to state mechanisms. In school, many students rely on ties from their colleagues in order to garner positions as civil servants. Additionally, there are strict rules for admission based on the competencies of those concerned.
One can argue that this assertion only applies to those in government employment; however, studies reveal that this system of bureaucracy also applies to the corporate arena. Japan has a series of external networks that have stemmed from private elites. The state interacts with key industrial players through the formation of both formal and informal industry associations.
This is the reason why Japan has proven to be as prosperous (Evans, 576). In this regard, it can be argued that Weber’s theory on the role of the bureaucratic institution has an application when it comes to the realisation of these benefits. However, this same case study still indicates that government cannot function alone in establishing these rules and norms; it must involve the private sector and must network with them so as to make the bureaucratic system applicable.
Construction of trading system
In certain circumstances, the state does play a crucial role in economic development because its key representatives may sometimes determine or construct the trading systems applicable in those respective countries. A case in point was the post war agreements between participants.
The American side wanted an open economic system while the British officials wanted to maintain preferential trading systems (Ikenberry, 58). Their opinions largely revolved around monetary systems and worldwide economies. In this regard, they had the power to influence one another and thus recreate a new way of visualising economic systems around the world.
The accord that was made between these two parties was called the Breton Woods agreement. It effects are still felt until today because those representatives sought to get a middle ground between extremes of laissez fair and government intervention. In this regard, it can be said that western political stakeholders played a large role in bringing out some of the underlying issues that were related to their country’s economies.
This agreement therefore illustrates that expert groups emanating from certain democratic states do have the power to set out economic goals that would otherwise not have been seen by the ordinary citizen and this highly contributes to their impending economic success. The agreement led to adoption of an open system of trade which still allowed for certain degrees of economic intervention among those concerned. According to the mercantilist theory, it is believed that politics and the economy cannot be separated.
Hamilton states that self reliance and national security must be enhanced through the adoption of political principles that strengthen the economy (Lenin, Hamilton and List, 36). Freidrich List states that one must protect one’s borders in order to prosper economically. These two schools of thought therefore demonstrate that political stakeholders are actually an important part of the economy.
Presence of rational actors
Economic systems may require a degree of independence for them to function properly. According to Adam Smith, free enterprise is characterised by a series of rational actors who are after their own interests. The gains and losses undergone by these players will often neutralise each other and this leads to the full employment of resources.
In other words, Smith brought forward the notion of classical liberalism where he believed that all government intervention would be detrimental to economic growth and should therefore not be involved in market economics. Therefore, it is only through economic growth that a state can grow. In this school of thought, adherents hold that the political entity should strictly be used in order to ensure existence of peace and good governance.
Several examples exist that demonstrate why state intervention can sometimes be problematic. Some of the poorest economies of the world are characterised by negative economic intervention by their leaders. Most of them do not care at all what happens to their societies and instead concentrate on their own personal interests.
Economic interventions are often done in order to meet the needs of those in power. Therefore for autocratic regimes, political intervention in the economy can be so detrimental as it often leaves their countries at the mercy of wrong doers. For instance, Sani Abacha – former Nigerian president cared less about his country’s untapped economy even when foreign experts revealed the great potential in this country.
As a result, the country lost billions of dollars which were siphoned by this respective leader into his bank accounts. A country like Zaire has suffered from a lack of economic infrastructure (Collier, 2). Their president decided not to build any roads under the claim that rebellious groups would find it harder to communicate if the roads were badly done. The poor economic performance of this state indicates that it was the negative intervention of its political leader that led to its economic destruction.
Another case in point was the former President of Kenya, President Daniel Arap Moi. He chose to intervene in his economy by banning exports of food from a neighbouring country. It was soon revealed that this leader chose to run the show in such a manner because one of his close allies invested in food and he wanted to inflate prices or enjoy high profits by monopolising food supplies. The same explanation applied to another African state called Angola.
Its political leadership altered the foreign exchange system in such a manner that it allowed for a dual system. External investigations soon revealed that its president was utilising the dual systems in order to take money for himself. Essentially, this illustrates that in autocratic governments, state intervention will do nothing more than destroy a country’s economy.
The problem of inequality
A large number of individuals assumed that the opening up of borders to external trade would facilitate a rise of the middle class and eventually lead to the reduction of income inequalities (Birdsall, 77). However, this author argues that nothing could be further from the truth. The US has largely been recognised as one of the major players of global integration.
Their cry for less government intervention or less protectionism has not resulted in great outcomes. In fact, the ugly face of capitalism has been witnessed in this nation owing to lack of access to higher education by poor families and also due to the continual reduction of wages by high school graduates. Essentially, this illustrates that liberalisation of the economy may not always be in the best interest of those concerned especially the ones at the bottom
Conclusion
Classical liberalism is somewhat unrealistic but certain elements of liberalism have been responsible for the flourishing of countries like the US after the world war. Liberalism’s critique of government intervention can be supported by the poor economic performance of some African autocratic nations. On the other hand, mercantilism can be supported through the success and existence of bureaucratic systems in countries like Japan. Prevalence of widespread global inequality illustrates how protectionism may sometimes be good for a country.
References
Birdsall, Nancy. Life is unfair: Inequality in the world. Foreign policy 111(1998): 76-93
Ikenberry, John. Creating yesterday’s new world order. International organisation 46(1992): 57-73
Weber, Max. Economy and society. NY: Bedminster press, 1911
Evans, Peter. Predatory, developmental and other apparatuses. Sociological forum 4(1989): 561-587
Collier, Paul. Why bad guys matter. August 2010