The structure of a state and its economy are intrinsically connected to each other. Political scientists have for long drawn a connection between politics and the economy. It is the question of who has power in society and to what ends the power can be used, that determines all other policies of a state. To show how political structure impacts the economy let’s take the example of the Korean Peninsula.
With the exception of a short period in the 1960s, when its economy briefly eclipsed that of its southern neighbor, North Korea has been generally unable to meet the needs of its people. North Korea’s economy suffered a devastating recession in the 1990s, when it shrank by nearly a third, and starvation is thought to have claimed the lives of several hundred thousand people. Things have improved but deprivation is still common. According to the World Bank, more than half of North Koreans lacked access to electricity in 2017, which highlights how poor the conditions there are and have always been.
On the other hand, The Government of South Korea is a centralized democratic republic. Its economic transformation since the Korean War has been dubbed the “Miracle on the Han River.” Once wracked by poverty and political chaos, South Korea has joined the “trillion dollar club” of the world’s leading economies. South Korea now has the world’s 12th largest economy in terms of gross domestic product, and is home to some of the world’s most iconic brands, including Samsung Electronics and Hyundai Motors.
A strong state is always required for a strong economy. The key to understanding why South Korea and the United States have strong economies are not just their pluralistic political institutions but also their sufficiently centralized and powerful states. A telling contrast is with the east African state of Somalia. Political power in Somalia has been widely distributed. Indeed, there is no real authority that can sanction what anyone does. Society is divided into deeply antagonistic clans that cannot dominate each other. The distribution of power in such a manner leads not to growth but only to chaos. Essentially speaking, at the root of the crisis in the state of Somalia is its lack of political centralization. This organically renders the state incapable of enforcing any law and order to even sustain basic economic activity. Max Weber, a famous sociologist, widely accepted the definition of state, identifying it with ‘the monopoly of legitimate violence’ in society.
Without such monopoly and the degree of centralization that it entails, the state cannot even maintain the basic duties that it has, that means naturally it cannot even regulate any kind of economic activity. Failure of achieving this minimum level of political centralization would lead to a society descending into chaos. History explicitly shows us this. If we see around the time the process of industrialization took off in England and started being adopted by other nations, Africa, where centralized states were formed very late, was the least benefited by the industrial revolution, and saw its development much later. Even today, the poorest nations of the world Haiti, African nations are the states that lack any political centralization.
Once we establish that a strong centralized state is integral to the process of development, we need to question the degree of this power. How centralized, and how strong should a state be?
I believe that this question essentially determines whether a state would lead to economic growth per se, or not. A sufficiently centralized and strong state, where power is broadly shared in society and is subject to constraints, leads to an inclusive and pluralistic society which is necessary for economic growth. On the other hand, a state which accumulates all the power at the center, cannot and does not lead to economic growth. Such a state, either produces wealth that only benefits the narrow elite or leads to an economy that tends to collapse after a point of time. This is going to be my argument in the rest of the essay.
In Barbados or Latin America, the colonists were able to use their political power to impose a set of economic institutions that allowed them to garner colossal fortunes for themselves at the expense of the rest of the native population. These resources further bolstered the absolutist monopoly of political power that they had.
This kind of economic growth is exploitative in nature, and never benefits the nation as a whole. Another historical example to prove how exploitative this kind of growth for a nation is that of the Kingdom of Kongo after independence from Belgian colonial rule. Congo faced immense poverty under the rule of Joseph Mobutu between 1965 to 1977 which seeped deep into the next many years. He created highly extractive and exploitative economic institutions which impoverished the citizens but put immense wealth in his hands and in the hands of the elite class ‘Les Grosses Legumes’. Such strong leaders, not only exploit the citizens relentlessly, but are also always resistant to change as they view it with fear and see it as something that can cause disturbance in their position.
Earlier in my essay I cited an example of how the African nations, because they didn’t have centralised power, didn’t see the benefits of the industrial revolution for long. The same goes for nations where leaders had consolidated power. The Austrio-Hungarian and the Russian empires, where the absolutist monarch had entrenched more power, viewed the developments as a threat that could disturb the establishment and as a result they were blocked there. This eventually led to a downfall in both the nations’ economies, while other European nations flourished during the nineteenth century. As against in England, where the Glorious revolution had previously stepped in and improved the economic and political institutions.
The second point that I made was that such states produce economies that tend to collapse. A brilliant example of this is the history of the Soviet Union. The Soviet Union in its earlier years was able to achieve incredible economic growth because of state command which helped in a shift to the industrial sector. Stalin collectivized agriculture and abolished private property rights. Besides, he taxed agriculture at very high rates. This allowed him to shift resources and output of the agriculture sector to the industrial sector.
This took all the incentives away from farmers who now couldn’t get what they produced and worked on. However, even the industry was poorly organised as it was so tightly controlled. Letting the market forces decide the dynamics of an industry of course is always the best way to promote economic growth but this system stood opposite to that. Nonetheless, the economy grew in the first few years, but the point is, the growth never sustained. Why? Because the state stood in the way of economic incentives, innovation and most importantly, technological development.
The economy stagnated after a point of time and gradually collapsed. Every year, there would be almost a million adults behind the bars for absolutely trivial labour violations. Truth be told, coercion, control and bureaucracy do not promote economic growth but only disrupt it. An industrialist who expects his output to be stolen, or be heavily taxed doesn’t have any incentive to work. Forcing people to work doesn’t help, incentivising them to work does. Anyway, such a regime would eventually be challenged by its citizens and would be overthrown.
If we talk about China, the nation that many people opposing my view use for advocating their beliefs, we need to look at its history and see how its economy and politics actually developed. If we go back, we would notice that China also has moved from extractive and highly controlling institutions to a market where individual autonomy is respected to a certain degree.
After Mao Zedong’s death in 1976, Deng Xioping, a senior member of the communist party, gradually rose to power and led China through a series of far-reaching market-economy reforms. Mao entirely dominated the communist party and had a monopoly over the sale of produce, which devastated the economy and led to a famine in the Chinese countryside. When Deng came into power, he set in motion reforms which helped ‘loosen’ state control over the economy.
For example, one of the reforms led to the abolishment of the mandatory state purchasing and establishment of a system driven by more voluntary practices. Enterprises were given more autonomy. Yes, China still had a strong state, but the change in its institutions was radical, which were made much more inclusive under Deng’s rule. Even if we consider the case of contemporary Saudi Arabia, (2) the Saudi family is the richest in the world, worth an estimated total of $1.4 trillion, predominantly due to its assets in petroleum. However, Saudi Arabia is still relatively poor; with 20 percent of people living in poverty, the problem of income inequality in Saudi Arabia is quite evident. This shows how exploitative a society can be under a leadership which consolidates power, mostly in the hands of the elite.
So, to summarize, in my essay I agreed with the fact that a strong state is a prerequisite to economic growth. However, I also emphasized on how important it is to gauge the degree of this power. The point I made is that a strong state that subjects its power to certain limitations, and provides autonomy to citizens when it comes to choices in markets, is a state best suited for economic growth. If this power becomes too narrow, it will have some or the other downside to it and if it becomes so wide that it leaves no space for a sufficiently strong central government, the society would descend into chaos, lead to political instability and eventually crumble.
To conclude, a strong state promotes economic growth and is necessary for the same, as long as it is also pluralistic or at least gives sufficient autonomy to its citizens in the economy.