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Governance Capacity and EconomicReform in Developing Countries

Leila L. Frischtak

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WORLD BANK TECHNICAL PAPER NUMBER 254

Governance Capacity and EconomicReform in Developing Countries

Leila L. Frischtak

The World BankWashington, D.C.

Copyright i) 1994The International Bank for Reconstructionand Development/THE WORLD BANK

1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printing June 1994

Technical Papers are published to communicate the results of the Bank's work to the developmentcommunity with the least possible delay. The typescript of this paper therefore has not been prepared inaccordance with the procedures appropriate to formal printed texts, and the World Bank accepts noresponsibility for errors. Some sources cited in this paper may be informal documents that are not readilyavailable.

The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s)and should not be attributed in any manner to the World Bank, to its affiliated organizations, or tomembers of its Board of Executive Directors or the countries they represent. The World Bank does notguarantee the accuracy of the data included in this publication and accepts no responsibility whatsoeverfor any consequence of their use. The boundaries, colors, denominations, and other information shown onany map in this volume do not imply on the part of the World Bank Group any judgment on the legalstatus of any territory or the endorsement or acceptance of such boundaries.

The material in this publication is copyrighted. Requests for permission to reproduce portions of it shouldbe sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bankencourages dissemination of its work and will normally give permission promptly and, when thereproduction is for noncommercial purposes, without asking a fee. Permission to copy portions forclassroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive,Danvers, Massachusetts 01923, U.S.A.

Tlhe complete backlist of publications from the World Bank is shown in the annual Index of Publications,which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors,and countries and regions. The latest edition is available free of charge from the Distribution Unit, Officeof the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or fromPublications, The World Bank, 66, avenue d'Iena, 75116 Paris, France.

ISSN: 0253-7494

Leila L. Frischtak is a consultant in the World Bank's Private Sector Development Department.

Library of Congress Cataloging-in-Publication Data

Frischtak, Leila L., 1954-Governance capacity and economic reform in developing countries /

Leila L. Frischtak.p. cm. - (World Bank technical papers; 254)

Includes bibliographical references.ISBN 0-8213-2962-61. Structural adjustment (Economic policy)-Developing countries.

2. Developing countries-Economic policy. I. Title. II. Series:World Bank technical paper ; no. 254.HC59.7.F728 1994330.9172'4-dc2O 94-19519

CIP

iii

CONTENTS

Page No.

FOREWORD ...................... ..................... v

ACKNOWLEDGMENTS ................. .................. vi

ABSTRACT ..................... ...................... vii

I. THE PROBLEM .................................... 1

II. THE SETTING ..................................... 4

Adjustment in the Eighties; from Economics to Politics ... ...... 4

The Paradox of the Adjusting State, and the ConceptualSpace for Governance ............................. 7

III. SOME CONCEPTS OF GOVERNANCE ..................... 11

IV. THE ARGUMENT ................................... 17

Early and Later States; from Contingencies to Patterns ... ...... 17

States and the Distribution of Power in Society .............. 20

Governance and the Demiurgic State in Developing Countries ..... 23

The Behavioral Logic of the Developing State-Uncoupling Scope and Capacity ....................... 25

On the Concept of Governance ....................... 28

Governance and Adjustment in Developing Countries .... ...... 30

Adjustment Perspectives: Exiting the Boundaries of theDemiurgic State? ......... ....................... 32

REFERENCES .......................................... 37

V

FOREWORD

As suggested by the experience of the last decade, many of the serious obstacles to thesuccessful implementation of adjustment programs are non-economical in nature. Adjustmentmay entail severe short-term costs to economically vulnerable social groups, as well asdisplacement of entrenched interests groups, in and outside of the state. Developing countries'states are often ill-equipped to overcome these obstacles. Paradoxically thus, reforms that aimat curtailing the scope of state intervention, such as privatization, liberalization of domestic andinternational trade, scaling back of protection and subsidies, and the imposition of fiscaldiscipline, actually require the enhancement of the governance capacity of the state.

This paper examines the relation between governance capacity and economic reform, andsuggests some conditions under which this capacity can be increased to make reform programspolitically feasible. It argues that, due to significant inequality in the distribution of resourcesand rents in societies, developing countries' states typically have been underendowed withcapacity to design and implement public policy with minimal autonomy from the pressure ofpowerful interests groups. Adjustment programs pose a difficult challenge, since many of theirrequirements, specially fiscal retrenchment, prevent the state from resorting to the instrumentsthrough which they have traditionally managed political conflict, such as the distribution of rents,subsidies and varied forms of patronage. Capacity to organize consensus and generate politicalsupport for adjustment programs may require minimal independence from those prominentgroups most likely to block reform efforts. Overcoming the chronic sub-provision of governancecapacity in the long run may hinge on the more permanent empowerment of some non-so-privileged social sectors, such as the middle classes, and the weaning of economic interests outof the state, so that their survival does not depend on the capture of rents and public resources.

The topic of governance and economic reform constitutes one of the focal points ofPrivate Sector Development Department's work on the appropriate roles of the state andgovernment-business relations in the development of the private sector in developing countries.This paper, originally published as a Private Sector Development Department Working Paperin May 1993, provides the analytical framework for an ongoing research project on the relationbetween governance capacity and adjustment programs, and is the first in a series of studies tobe generated in this project.

Magdi IskanderDirector

Private Sector Development DepartmentFinance and Private Sector Development

The World Bank

vi

ACKNOWLEDGMENTS

The author is indebted to Carl Dahlman for first suggesting the idea of a "vision" forstructural adjustment, and to Aloisio Araujo, Izak Atiyas, Carl Dahlman, Claudio Frischtak andIbrahim Shihata for most useful comments to an earlier draft.

vii

ABSTRACT

The extended scope of governmental intervention in developing countries is usuallyaccompanied by a short supply of governance capacity--understood as the ability to coordinatethe aggregation of diverging interests and thus promote policy that can credibly be taken torepresent the public interest. Capacity is essential to engage the support and compliance ofsociety to governmental decisions, and, of course, to make policies sustainable over time.Economic reform requires the politically difficult proposition that the scope of governmentalintervention be reduced, which in itself hinges on expanded governance capacity. This paperdiscusses the reasons for the chronic deficiencies in governance capacity, and explores someconditions in which these deficiencies can be overcome to ease the way towards successfuleconomic reform.

I. THE PROBLEM

In the past few years, governance issues have come to occupy center stage in structuraladjustment programs. The focus on govemance came about as a result of the accumulatednegative experience in adjustment lending by international financial institutions, with theimpermeability of many African countries to economic reform and the disappointing results inLatin America looming large. The crises (typically in Africa) and deficiencies (mainly in LatinAmerica) of governance were diagnosed as barriers to positive policy responses, and thusgovernance became a key variable in explaining adjustment performance in developingcountries.Y'

This development signifies a remarkable new trend in economic policy analysis consid-ering that only a decade ago, political factors were easily dismissed or, at best, given a marginalrole in explaining residual variations in policy outcomes. As intellectual momentum gathersaround the governance question and as the bibliography on governance increases, theapplicability of the concept is expanding to include the transformations taking place in EasternEurope and even China (Landell-Mills and Serageldin, 1991). To the extent that the "problemarea" of structural adjustment is increasingly identified as one of implementation, concern isshifting from the substance of policies--on which, incidentally, there is growing technicalconsensus--to the policy environment itself. Institution building and design; the nature andtransparency of decisionmaking procedures; interest representation and conflict resolutionmechanisms; and limits of authority and leadership accountability--all of which ultimatelyconcern the very essence of the polity--are frequently identified as governance issues and fill theexpanding agenda of what can be called the political economy of structural adjustment. In policylanguage, all of these issues show up as material for reform and are included in the set ofadjustment measures necessary to restore growth and development.

Despite the breadth and complexity of the issues that it denotes, the notion of governancewas a happy finding in economic policy analysis; or to put it differently, in its brief history,governance has so far proved to be a soft-bound, user-friendly concept. Indeed, the elasticity ofthe concept could be a symptom of the fact that not enough attention has been given to definingthe phenomena to which it refers. In the absence of explicit definitions, governance often is usedas an "umbrella concept" under which elusive and ill-defined political processes and concerns,as well as desirable goals and value preferences, can be subsumed. Alternatively, when

1/ See World Bank, Sub-Saharan Africa -- From Crisis to Sustainable Growth. A Long Term Perspective,November 1989.

- 2 -

governance is given more rigorous treatment, it can still be straightforwardly identified withconsiderations of rationality or efficiency in the state machinery and bureaucracy.

While all of the issues mentioned above are relevant to the idea of governance, thereliable use of this concept is contingent on a number of unanswered questions. The mostimportant question, though, is how specific the concept is in terms of the phenomena orproblems it claims to represent, and how does it relate to others in the same vicinity ofmeanings? If governance means the same as government, or govemability, or rationalgovernment, or a liberal democratic political system, then the net benefit is the sheer generationof conceptual redundancy. If, on the other hand, governance designates something not identifiedby the existing concepts, or summarizes a number of different ideas in an economical form, orcondenses relationships among different phenomena, then the design choices and assumptionsof the concept have to be stated and the boundaries clearly established.

One other central question relates to the concept's precise methodological status inexplaining economic policy outcomes: what role does governance play in the adjustment anddevelopment literature? This is a different question altogether from concept building; it relatesto the explanation of events. While the literature so far has consistently presented lack ofgovernance as a constraint, or set of constraints, to effective adjustment policies, it has beenmore reticent in fully developing the related arguments and implications. Thus, regardless ofwhat governance designates, it is usually introduced as an independent variable in explainingpolicy responses. The ways that governance affects policy responses, and its explanatory capacityrelative to other factors, however, have never been sufficiently examined.

If lack of governance is a constraint to adjustment and the resumption of growth, thenby inference, positive governance is a condition of sustained growth and development. Couldit then be concluded that in countries where the recent economic crisis has interrupted a patternof consistent and sometimes impressive growth rates, the supply of governance was adequatebefore the crisis? Or is governance a new requirement that relates specifically to the nature ofeconomic management in the present time? Are there other changes that are acting as newintervening variables and making governance more necessary for development than it was in thepast?

On the other hand, governance crises or failures could be seen as the result, at least inpart, of attempted adjustment efforts or the disequilibria associated with negative growth and thedemise of the previous mode of economic operation. An argument also could be made that

- 3 -

failure to adjust and the failure of governance are independent but mutually reinforcing events

that are both the result of other (historical) factors and processes.

These are a few of the questions that have to be addressed if a coherent argument ongovernance constraints is to be developed. The literature that has associated adjustment withgovernance has generally paid scarce attention to these questions, however, possibly because theproblem of governance first arose in a policy context where the focus was necessarily narrowand prescriptive. It was only as the concept came into general use that its broader implicationsbecame apparent. It is now clear that the impact of governance problems on the differentresponses to adjustment and growth among developing countries cannot be properly investigatedunless governance is given more rigorous treatment, both on the conceptual and the methodologi-cal levels.

The underlying heuristic challenge here is the same as that which have oriented much ofthe recent literature on the theme, namely to understand why some developing countries havemade striking advances in the direction of adjustment and sustainable growth, while others thathave a similar balance of endowments and constraints have become immersed in an ever-increasing spiral of obstacles. This paper addresses but one aspect of this question by examiningthe causal intersections between governance problems and adjustment constraints.

Part II of this paper sketches the evolution of the notion of adjustment in the policyliterature, and discusses how issues of governance came to be seen as determinants toadjustment. Part III briefly presents some of the ways governance has been defined, andintroduces the problem of "capture' - when private interests gain control of the state. Part IVpresents the paper's main arguments. It attempts to explain the constraints on governancecapacity in developing countries, and speculates on the conditions under which these constraintscan be overcome in order for successful adjustment and sustained growth to take place.

- 4 -

II. THE SETTING

Adjustment in the Eighties: from Economics to Politics

Since the beginning of the 1980s, the theme of structural adjustment has dominated thefocus of economic policy for developing countries. Originally the theme took on different tonesaccording to the forum where it played. For example, the international lending institutionsperceived structural adjustment as a clear, uncomplicated way to help reorder the financial chaosthat the debt crisis was threatening to create. The neo-orthodox grammar from which thissolution originated had not only been alive and well in these institutions for some time, but ithad just been given a boost by the fierce resurgence of pro-market, anti-big government standsin Britain and the United States.2' Accordingly, adjustment was straightforwardly translated intoa package of internal measures designed to realign domestic demand with the reduced availabilityof external resources and to "get the prices right" in developing countries -- and in the process,to trim down the (uncomfortably) overgrown governments. Overall, the diagnosis of the crisiswas stem but benign; stabilization was to be bitter but quick medicine in an optimistic scenariothat foresaw short-term resumption of growth.

For most developing countries, however, and especially for those in serious financialtrouble, the message of structural adjustment was sobering. Caught up in a sudden reversal ofnet resource transfers when they had always been deficient in domestically generating financingfor growth (a predicament further aggravated by the expensive liability of an overgrown state),these countries faced the imperative of substantively altering their established modes of economicoperation. Decades of import substitution, coupled with varying degrees of economicmismanagement, had left many developing countries poorly equipped to function in anincreasingly competitive world economy. To a great extent, what adjustment really meant wasnew and much harder rules of the economic game, making inexorable the full integration ofthese countries into a much less benign world economy.

2/ In the words of Nelson (1990), 'The convergence reinforced technical reassessment with ideologicalcommitment, at least in U.S. official circles. Neo-orthodox assumptions wholly dominated the reactionsof the Bretton Woods institutions and of the United States, Germany and Japan. Linked to balance ofpayments support through the new emphasis on policy based lending and backed by formal or informalcross-conditionality among creditors and donors, neo-orthodox prescriptions were urged on governmentsin all regions and in varied situations.'

The structural adjustment scenario confronting the developing countries was generallypessimistic. Sudden resource scarcity greatly reduced their freedom to determine the degree andform of their relative isolation from the world economy, and at the same time, it drasticallyincreased both the difficulties and the political costs of moving toward a more open domesticeconomy.

Moreover, both the debt crisis and the resulting pressure to adjust were tinged withunpleasant political connotations. If the financial disaster threatened to spill over to theinternational system, the source of the problems was uniformly viewed, by both the creditornations and the lending institutions, as endogenous to the countries in trouble; and the treatmentwas also standardized, with little regard for each country's particular circumstances. Althoughreactions varied widely, most developing countries bitterly resented that approach, and politicalsensitivities ran high.3' Regardless of whether or not they accepted the charge of mismanagementof domestic economic policy or had heeded earlier warnings about debt-led growth, many ofthese countries blamed the crisis on its exogenous detonating elements--such as the sudden risein U.S. interest rates--and structural adjustment was resented for being externally imposed.

Ten years later, the accumulated experience with adjustment was not encouraging; resultshad fallen far short of the international institutions' original expectations. From the point of viewof the troubled developing countries, the picture was even more appalling; most had made onlyincipient progress towards stabilization, new lending had not materialized, and domesticconditions in the recessionary economic environment were continuing to deteriorate. Moreover,with the looming threat of political instability, tolerance for the bitter medicine of adjustmentwas waning. Lending institutions that had already committed sizeable administrative and financialresources, along with their credibility, to adjustment, therefore met with mounting resistance asthey tried to impose additional reform packages and more stringent conditionality clauses on thegovernments.

Not only did structural adjustment as a short-cut to resumed growth in the developingworld prove far more complex and politically difficult than expected, but the notion ofadjustment itself was substantively altered during the decade. By the time the policy literaturetook it under scrutiny, "long haul" had replaced "short haul," and the notion of a lengthy processhad enlarged the limits of an original limited shock treatment, as stabilization measures were

3/ Notable exceptions were Chile and Turkey, which had already begun the process of adjustment before theonset of the debt crisis.

- 6 -

followed by more open-ended structural reforms.' Stabilization already meant cutting down thesize of government, including major cuts in personnel and captured rents. More encompassingstructural reforms, implying as they did longer-term costs and more permanent income losses,were even more politically sensitive to design and implement, and made it more difficult tocreate minimal domestic consensus on the distribution of costs. Because these and othermeasures were encountering resistance too strong for most governments to face, institutionalreforms came to be included in the adjustment agenda in an effort to equip governments to meetthis resistance and stay the course of adjustment.

Increasingly, the practice of adjustment came to reflect the view that the politicalenvironment was the primary source of obstacles for sustained economic change. Issues relatedto the adequate institutional design for structural adjustment and for growth became pervasivein economic policy analyses, echoing, in prescriptive language, the old intellectual debate on therelation of politics and economics. The international financial institutions, which had started outselling a package of simple and clear recipes to clean house as a requisite to further lending,were in danger of overrunning their own agenda. What was potentially at stake now were notonly developmental models, in themselves beyond the control and the objective capacity of theseinstitutions to manage; but also, and increasingly so, the very nature of the political systems ofsovereign countries, any consideration of which exceeded both the technical expertise and themandate of these institutions.

Not surprisingly, as politics became an integral part of the adjustment/developmentequation, disputes arose as to the scope of political matter that could be included as constraintsin this equation--and therefore could become a proper target for policy reforms in the contextof adjustment lending. The differing views came to be reflected in different ways of defininggovernance capacity.5' Those favoring a more embracing definition of governance tended tobelieve that the political requirements of adjustment included quite detailed and specific attributes

4/ In Weissmann's (1990) words, ' ... shaped by unanticipated external and internal constraints, structuraladjustment policies have become longer-range and more comprehensive" (p. 1623). See also Nelson(1989).

5/ More recently, a concerted effort to reach an operational consensus within the World Bank has establishedthat, for the purposes of that institution, governance means the 'manner in which power is exercised in themanagement of a country's economic and social resources for development' (World Bank, 1992, p. 1).Based on the work of a task force explicitly set up to identify the set of governance issues that fall withinthe Bank's mandate, and following the sobering warnings raised by a previous document on precisely thisproblem (Shihata, 1990), this rather neutral definition seems to represent a decision to roll back theunderstanding of governance from more forward positions that would have associated it with specificattributes of (democratic) political regimes.

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of the polity, extending to, for example, freedom of expression and popular participation in thepolicy decision process. Opposed to this view was a more restrictive understanding ofgovemance, i.e., a narrower and shorter enunciation of the political conditions necessary forsuccessful adjustment to take place. In all cases, however, govemance was not treated as animportant phenomenon in its own right. Rather, it was subsumed under the demands of positiveeconomic performance; that is, it was seen only as a variable impacting adjustment and growth.

The Paradox of the Adjusting State, and the Conceptual Space for Governance

The apparent incongruence of the "adjusting state" has already drawn some attention inthe literature. Indeed, in the last decade's production of policy pieces on the theme ofadjustment, there has been a recurrent paradox in the simultaneous arguments for less and morestate. The paradox became more salient as the decade wore on and the adjustment processrevealed itself as more complex, with the package of recommended measures demandingincreasing political interference, and involving an increasing number of agencies and agents ofthe governments.

The most immediate and practical inconsistency in the anti-state nature of the reformsadvocated by the international institutions was that they had to be carried out by state officialswhose own jobs, values, and larger interests were at stake. This was no trivial problem, asexperience in both Africa and Latin America has clearly shown (Nelson, 1989). This conflictwas especially acute if public jobs were being used as a source of rent extraction and patronage,and if expansion of public employment was an important resource for political parties competingat the presidential and local levels of govemment. In Bolivia, for instance, announced adjustmentpolicies were repeatedly aborted until a secret pact was negotiated between the two politicalparties which secured mutual support for a comprehensive reform program and made itpolitically safe to reduce the level of public employment (Malloy, 1991).

More substantively, the paradox was that reducing the size of the state and the scope ofits interference in the market seemed to imply an expanded state capacity. The fact that in mostdeveloping countries (their over-grown states notwithstanding) this capacity in its basic form washardly present at all, and therefore had to be both built and invented in the context of drasticallyshrinking resources, is one of the mean ironies of adjustment.

Also ironically, a more adequate framing of the paradox first came from the reinterpre-tation of the same development success stories that were presented as paradigmatic by the anti-state proponents. In the East Asian experience, success was found to be positively -- and very

- 8 -

much -- related not to less state, nor to small states, but to strong, intervening, effective states.Y'The key idea was state effectiveness, and state aaaacapabilities came to occuppppy the centerstage in explaining adjustment success. In the context of adjustment requirements, the statebecame at once the subject and the object of change. Referring precisely to this "paradox of thecurrent Latin American situation," Malloy summarizes:

"While the economic logic of neo-liberal stabilization programs calls for arollback and weakening of the state's role in the economy, political logic(statecraft) demands an increase in the power and efficiency of the state tounderwrite the capacity of governments to sustain policy lines over time. Tomaximize the effective capacity of the state to implement an anti-statist economicpolicy demands that statesmen create a 'leaner, meaner"' state (Malloy, 1991, p.55).

Debates over the nature, substance, and underlying behavioral logic of the state are alongstanding intellectual tradition in political science and political philosophy. It may besymptomatic of the nature of the problem, or of the investigation, that no single conception hasbeen able to achieve consensus in the disciplines. The adjustment literature lands right in themiddle of this perennial conceptual dispute. The difficulty of clarifying the paradox of theadjusting state can partly be attributed to the very elusiveness of the state as a problem.

Recounting the theoretical duelling over the state among the diverging schools of thought,no matter how fascinating, by far exceeds the limits of this paper. Of particular relevance,however, is what the students of comparative politics as well as development economics haverepeatedly discovered, namely, the intriguing combination of weakness and strength that oftencharacterizes Third World states. Neither the classical political allegory of a social contract northe standard recent explanations for the existence of governments have traveled well to mostdeveloping countries;2' their states do not resemble Western advanced states either diacronically

6/ See Haggard and Kaufman (1989).

7/ Apart from the many individual contributions to the conceptual problem of the state, which cannot beenumerated here, two distinct theoretical matrices are particularly relevant to the ideas developed in thispaper. One is that of public choice theory in its more recent renditions based on the rent-seeking argument-- or what Grindle calls 'the new neo-classical political economy." For excellent summaries of thisargument and for bibliographical sources, see Evans (1989), Granovetter (1985), and Grindle (1989).The other matrix is neo-Marxism, which relaxes the deterrminism that mechanically binds the behavior ofthe state to the promotion of the interests of the dominant social classes, and thereby carves out sometheoretical space for state autonomy. See, for example, Skocpol (1985), among others. Despite the fact thatboth of these matrices can provide useful, lucid insights into many facets of the developing state, they

- 9 -

in their evolution or in their contemporary format and dynamics. Judged by the established

parameters of the modern liberal states, most states in the developing world!' have been over-

endowed in their power to regulate and otherwise to directly interfere in social behavior and

economic activity, while being chronically anemic in their ability to tax and resist pressure from

dominant social groups.

And yet, compared to the typical reactive role attributed to (and prescribed for) liberal

states, developing countries' states, on specific but rather remarkable occasions in their histories,

had been able to commit themselves to the active (though not necessarily effective) promotion

of national goals that did not figure in the wish list of any particular social group, and in fact

often ran counter to the interests of the most powerful groups, at least in the short run. The

emergence of these states has been registered in the literature in varying ways; more recently

they have been called Developmental states (Evans, 1989).

No single explanation of the behavioral discontinuity of states across levels of

development, or "Worlds," has been persuasive enough to date to generate substantive

agreement. Neither have the historical contingencies that led to the emergence and demise of the

Developmental State been satisfactorily explained. The agenda of structural adjustment has

brought the developing state to the attention of the economic policy community and the

international lending agencies, and has exposed this community to the familiar but ever-puzzling

questions about the logic of this state's behavior and its relation to society.

In particular, revisiting the developing state through the lens (or language) of adjustment

requirements adds a new twist to its historical legacy. For adjustment purposes, developing

countries need to excel in performing a role the capacity for which they have traditionally

lacked, so that they can undo that which they have consistently excelled in doing, namely over-

regulating and over-interfering. The challenge is compounded by the fact that this has to take

place under severe scarcity conditions, which prevents these states from buying their way out

of political conflict and opposition by the means of public resources.

nevertheless leave crucial characteristics of this state unexplained.

8/ The governments of developing countries in reality differ greatly along the dimensions classified here asweak and strong, and differ in other respects as well. For the purpose of simplifying the argument, theanalytical construct of the developing country state is used here in the sense of a Weberian "ideal type";that is, it is not a photographic image or synthesis of the empirical features of any state, and is subject totesting only in its conceptual relevance. As with any other concept, it will be more applicable to someconcrete cases than to others.

- 10 -

The paradox of the adjusting state thus exposes precisely the missing quantity in the

developing state -- the quantity that has come to be called governance. It is the development of

governance capacity that has come to be perceived as one of the main challenges of adjustment.

One of the side effects of a full decade of adjustment experience was the narrowing of

the ideological gap between different views on the short-term economic treatment to be applied

to developing countries in trouble. Boosted by the rapid changes in Eastern Europe and the old

Soviet Union, expert opinions strongly converged towards the belief that markets work and

should be restored as a precondition for growth, the most immediate measures to accomplish this

goal not being the subject of much technical dispute. The net effect of the "de-problematization"

of the content of adjustment policies was to shift the explanation for the failure or success of

those policies to the exogenous political environment.

The conceptual space for the idea of governance was therefore created by the paradox

of the state in the adjustment scenario, while the explanatory space was created by the

exhaustion of endogenous independent variables to account for divergence in policy outcomes.

The intersection of these two strands revealed a need to identify a significant attribute of

government that was distinct from what the sheer existence of a functioning government already

implied. Some of the ways in which this was done--i.e. ways the concept of governance was

defined and its role in adjustment was explained--are discussed in the next pages.

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III. SOME CONCEPTS OF GOVERNANCE

The attempt to make conceptual use of the word governance is quite recent, and as there

is no precedent for any particular interpretation of the word either in academia or in popular

language, the boundaries of the concept have been soft. Those who use the word, consequently,

have enjoyed considerable freedom in the ideas they wish to convey, and their usage has not

necessarily been informed by any set of semantic or methodological criteria shared by a

community of users.

As a result, there is a cumbersome abundance of definitions in the literature, by no means

constrained to refer to the same set of problems or issues.2 ' It is quite difficult to classify the

varied and uneven usage of govemance into any typology. In some analyses, governance might

be no more than a loosely conceived, intuitive, or simply tangential idea. Alternatively, it can

be a more elaborated concept whose dimensions are formally identified.'" Some uses of

governance are entirely redundant, as in the popular definition of governance as "good

government."' ' Other uses address one or two substantive aspects of the concept but shy away

from providing a full definition; while still others present potentially relevant "governance

material" but do not necessarily identify it as such."'

Although it is beyond the scope of this paper to summarize the literature, a few

conceptions are relevant here because they address the issues central to this paper.L' One such

9/ Indeed, only if the parameters of the definition are made explicit, will the necessary debate be able togenerate minimal operational consensus among users. It is important to note that this operational consensusis different from conceptual uniformity. Rather, it implies limiting the sematic field, and the establishingof a common language through which even conceptual disputes can take place.

10/ See Shihata, op. cit., Landell-Mills and Serageldin, op. cit., and Sagasti (1990).

11/ There are several distinct manifestations of the good government approach to governance, eachcorresponding to a different conception of what good government actually means. The use of governancein this sense is especially problematic because the adjective in question, "good," denotes entirely subjectivequalities.

12/ An example of the first is Martin's article on the connections between governance and culture (1991). Thelatter is evidenced by the recent literature on constraints to adjustment, which, without making explicit useof the idea of governance, does provide most of the elements for an adequate conceptualization of it. See,for instance, the two volumes on adjustment edited by Nelson (1989, 1990), particularly the pieces oninstitutions and on the "greenhouse approach" in Africa by Hyden (1990). Much that is of interest for thispaper falls in this last category.

13/ These conceptions are not necessarily discrete and can overlap at times. Moreover, more than oneconception can be present in a given analysis.

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conception identifies governance with democratic processes and institutions. Typically, the

underlying assumption in this conception is the classical liberal distrust of government and all

things political. The political universe can be variously pictured as the realm of partiality, of

ideology, of rent-seeking, of arbitrariness, and even of corruption; but, most importantly, it is

perceived as antithetical to the dominance and effectiveness of market mechanisms."4 '

In this understanding of governance, democracy figures as a requirement for successful

adjustment. The idea is that governance is a positive quantity, understood as the exercise of

democratic government, which guarantees the dominance of the rules of economics over those

of politics. Government is kept small as part of effective economic policy. Democratic

institutions are seen as the guarantors of effective markets, either because of their mutual

historical affinity or because they are assumed to provide the antidote for big government, which

is potentially distorted or corrupt.L'5

As Nelson (1990) has aptly pointed out, this conception is a flashback to the heyday of

modernization theory in the 1950s and 1960s, when the "all-good-things-go-together" approach

found happy correlations between democracy and growth."-6 However, there is no more evidence

to support this thesis today then there proved to be thirty years ago. If the data do not directly

contradict the stated relationship between democracy and adjustment, they at least cast enough

doubt on this relationship to prevent the democracy thesis from being empirically reliable.0 To

build attributes pertaining to specific political regimes into the very concept of governance--quite

141 In the words of a proponent of this view: "...politicians often have little understanding of the rules or logicof economics and are always tempted to extend the scope of political decisions to economic affairs,especially if 'technical realities' are not well understood. In economies with a high degree of interventionby the state, the rules of politics tend to dominate. Market economies based on free enterprise do notoperate effectively under such rules. Most economic proposals -- at least at the macroeconomic level -- are[thenl tinged with subjective elements of an ideological-valorative nature" (Boeninger, 1991, p. 268).

15/ There is also another argument behind the causal connection between democracy and adjustment. Concernwith equity, poverty eradication, and even human rights abuses also leads many analysts to believe that noreal development can actually take place as long as mechanisms that ensure popular participation andcontrol in the policy process are absent or inoperative.

16/ Modernization theory, of course, had to make a hurried exit when a series of military coups in the 1960sand 1970s in Latin America installed authoritarian regimes that were quite successful in promoting highgrowth, at least for a limited time.

17/ In their analysis of fiscal and monetary policy in twenty-five developing countries, Haggard and Kaufman(1989) found no substantial differences between the ability of democratic and authoritarian regimes toimplement stable macroeconomic policies. Countries on a transition path from an authoritarian to ademocratic regime, on the other hand, were found to have considerable difficulty implementing stabilizationpolicies.

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apart from the fact that these attributes and norms may be worth promoting in their own right--detracts from the analytical utility and credibility of the concept.

The second conception of governance worth noting is present in analyses that--withoutnecessarily making direct reference to governance--locate the key constraint to effectivepromotion of economic policy in the institutional capacity of governments. The governancequantity that can be derived from this approach is then identified in the state apparatus or thebureaucracies. Governance is thus broken down into such traits as insulation, autonomy,efficiency, rationality, and technocratic qualities, which make both the governmental machineryand its personnel less permeable to the disruptions and corruptions of politics (Callaghy, 1990;Sagasti, op. cit.).

In this approach the focus is no longer on the question of small versus big governments;adjustment responses will vary, rather, according to the institutional quality of a government(Israel, 1990). The corollary of this conception is the emphasis on institutional building anddevelopment, which has indeed become quite popular in calls for policy reforms. Institutions,however, do not develop overnight, particularly when their purposes are externally defined. Inciting the much-quoted warning of Waltz that "necessities do not make possibilities" (Waltz,1979), Callaghy prudently cautions against a mechanistic approach to institutional building basedon the simplistic belief that institutions can be easily transformed or generated as a result ofpolicy alone (Callaghy, 1990).

The institutional capacity approach to governance illuminates some of the centralproblems constraining countries from adjusting effectively. But if the cautionary note in thepreceding paragraph is correct, the focus exclusively on existing institutional capacity ignoresthe question of what conditions will allow countries to develop this very capacity. In fact, if theidea of governance is contained within the structure of the state rather than in the state's modeof operating in society, the argument becomes somewhat tautological. The countries more likelyto adjust are, in real terms, those whose states can promote insular, rational, and efficientpolicies. To promote such policies, states need institutions and bureaucracies that are insular,rational, and efficient.

A third conception of governance calls attention to the importance of culture as a codeor language (Martin, 1991) that informs both perceptions and behavior in any given community,and from which no idea of political or economic development should be alienated. Thisconception is mainly inspired by the development experience of Africa, where developmentstrategies imported from abroad, and externally imposed (or artificially copied) forms of political

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organization are often held responsible for the ongoing governance crisis and failure to adjust.

This conception also refers, however, to the positive experiences of countries such as Japan and

Korea that "have been able to modernize without losing their own cultural heritage; both have

been able to 'privatize' without giving up a strong sense of authority." So "people in very

different societies have managed to mobilize cultural traits of their own for successful economic

performance or [have] changed their cultural traditions sufficiently to allow [for] such

performance" (Hyden 1990a, pp. 74-75).

The central message of this conception is that governance has to be culturally bound. In

Africa, accordingly, this conception advocates a move away from top-down, state-centered

political forms of organization and toward greater reliance on self-governing local communities,

where non-governmental middle institutions and organizations play a greater role. Economic

policy and development strategies should also be "culturally" compatible. Economic decentral-

ization and the growing emphasis on indigenous resource bases--rather than on large-scale,

capital-intensive, and high-tech projects--reinforce the notion that "small is beautiful" and might

be more efficient after all (Hyden, 1990b).

The importance of culture as a general system of meanings, and its resilience in orienting

social behavior even when radically different, alien, or supposedly "better" structures are

superimposed to reshape this behavior, cannot be disregarded.'"' The greenhouse approach to

economic development in Africa (Hyden, 1990a) is an important step in incorporating cultural

constraints into policy thinking and design. Nevertheless, there is always a danger that one might

jump too quickly or uncritically from one form of alienation to another. Indeed, the rejection

of the legacy of the colonial state, and subsequently with independence, of the central planning

state, as culturally unbound entities at odds with native African community structures, will not

necessarily lead to strong unregulated markets or to the thriving economic behavior that

characterizes atomized individuals in Western liberal societies. There is no reason to suppose

that the indigenous community will be more congruent with the free private sphere of Western

societies than it has been with the central controls of public agencies; or that this community will

be culturally more amenable to the market than to the state as the main resource allocation

mechanism.

Finally, one other conception of governance is central to the argument developed in this

paper. This conception sees governance as the provision of universal and abstract rules, the

institutions that enforce them, and the predictable mechanisms to regulate conflicts over both

18/ A most persuasive argument on the primacy of culture in shaping society can be found in Sahlins (1976).

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rules and their enforcement (Shihata, 1990). This approach excludes any normative content, and

any attribute of specific political regimes from the conception of governance; that is, the term

does not refer to the substance of rules, the design of institutions, or the nature of conflict-

solving mechanisms. The very existence of such system of rules, institutions and mechanisms,

as long as they are universal and predictable, defines governance capacity in the modem state.

The modern state described by this conception of governance is the same rational-legal

"ideal-type" of state that was described by Weber (Weber, 1911 and 1968). And just as Weber

conceived this type of state as the form most conducive to the economic activity and social

organization of modern capitalist societies, the rules and institutions approach also posits that

the governance it describes is both necessary and sufficient to provide an enabling policy and

business environment. Without it,

"...the fate of enterprise, like that of individuals, will be left to the whims of the

ruling class or clique. Such absence will also reflect a general lack of social

discipline which could render meaningless any process of economic reform"

(Shihata, 1990, p. 45).

In reality, the central problem of the state, and of the governance capacity it encompasses

or expresses, is the problem of capture of the state by powerful interest groups. That is to say,

the most important challenge facing any state is its survival, and the primordial condition of

state's survival--let alone its capacity to provide effective public policy and an enabling

environment for growth and development--is that of maintaining a minimal degree of autonomy

from the competing pressures of society. Hence, no matter what else governance means--culture,

efficient bureaucracies, universal rules, effective institutions and processes--it has first to address

the question of capture.

Most of the conceptions discussed above attempt to deal with capture or its opposite, state

autonomy. They do so either by positing that the solution might be institutional--creating

institutions that make the government less vulnerable to capture, or keeping governments small

to minimize the opportunities for capture--or by assuming a cadre of civil servants inherently

committed to the public good, as in the Weberian state. This paper attempts to provide yet

another explanation for state autonomy and its relation to governance capacity.

Admittedly, focusing on capture as a way to conceptualize governance and examine its

impact on adjustment and development does not imply that state autonomy is all that governance

is about. It only assumes that autonomy is a necessary and a primary condition for governance.

- 16 -

If one accepts the premise that public policy should not simply promote particular privateinterests in society but rather should aggregate, order and promote the interests of society as awhole, then minimal governance capacity should be viewed as the condition under whicheffective public policy can be promoted. This is the central premise of the argument developedin the next section.

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IV. THE ARGUMENT

Early and Later States; from Contingencies to Patterns

The recent revival of academic interest in the state12' has once more shed light on theremarkable political invention the modem European nation state has proved to be, both in itsendurance and efficiency, and in its striking consistency as it spread to all corners of the globe.In effect, the winning formula of the state became virtually compulsory, as the entire world wascarved up into nation states (P. Cerny, 1990) through colonization, imitation, or imposition,replacing and preempting other known and unknown types of political units in less than threecenturies. The state has thus triumphed in becoming "... the only internationally recognized

instrument of governing human societies" (Martin, 1991).

The most intriguing aspect of such an institutional invention was that, not having beenborn out of any historical necessity, but being the unanticipated result of peculiar developmentsin a specific time in a restricted European scenario, it has been so durable and adaptable toradically different environments across time. Following Cerny's persuasive argument (op. cit.),states are neither natural entities nor the inexorable outcome of any identifiable historicalevolution, but rather are "essentially contingent phenomena" arising from "...non-replicable,unique mixtures of historical accident, coincidence, precedents (re-interpreted and refashionedin new circumstances), and design. Once established, however, structural patterns tend, in aprobabilistic fashion, to be reproduced ... [and for several different reasons pertaining to attributesof the states themselves and their relation to other institutions and social actors, and]...they buildinto coherent processes of development" (p. 27).

Nevertheless, the specific contingencies underlying the emergence of European states inthe modern era, no matter how much they themselves varied across cases and across time,A' didlead to patterns of state formation that would not be replicable in the non-European contexts

19/ See Skocpol (1985) for a comprehensive discussion of the reasons for this revival and the identification ofits central themes and questions.

20/ The process of state formation spans several centuries of European history, and scholars disagreesubstantially on the specific time boundaries of this process. As it is evident that major contemporaryEuropean states were still not in existence as late as the nineteenth century, dissent on the beginnings ofthe state-building era is particularly relevant. Strayer (1970), for instance, argues that the modern state wasalready the winning and dominant form of political organization in the 1300s, while many historians (seeTilly, 1975) do not agree that other political solutions were eliminated at such an early date.

- 18 -

where this state was later purposefully mimicked.2 " The initial transplant of this state in thedifferent waves of European colonial expansion; its subsequent transformation with independencefrom colonial rule; and all the other forms in which the state was adopted by late developerswith no colonial history, or was artificially (often violently) superimposed on pre-existingpolitical or national units as a result of war, all constitute alternative paths for state building thatcannot be subsumed to the original process through which the state was "invented."L'

The varied collective history of states reveals at least two markedly distinct and mutuallyirreducible patterns of state formation. The peculiar sequence of events that led to the lateadoption of the state in non-European contexts endowed it from the start with a mandate towardssociety that radically differed from that of the original European matrix. In addition to theestablished functions of providing law and order, the imported state was supposed to eithercreate or substantially recreate society. Hence, the imported state generated a different dynamicof state/society relations, and had a logic of behavior different from that of the original state thatinspired it.

In the original state, the mandate evolved from a partial transfer of rights from society,and the state was therefore continually bound by the tension of societal resistance to any increasein such transfer. The early process of state building corresponded exactly to the actual extractionof such rights through war and subjugation, or to the concentration of power by the state at theexpense of lords, peasants, communal organizations, and smaller political units. As the absolutiststate gave way to the bourgeois revolutions, liberal thought represented this transfer of rights,and the related notion of political obligation, in the terms of a social contract. The allegory ofthe social contract can be interpreted as an attempt to set the limits of legitimate state action bybinding the state's mandate to its provision of the rules and institutions necessary for theoperation of markets.

Whether or not that conception of the liberal state ever did, or still does, describe actualWestern states is less important than the fact that it continues to orient political (and academic)thought, and actual political behavior, in societies committed to a liberal economic and political

21/ See Tilly (1975) for an exposition of the historical causes for the non-replicability of the processes that ledto the formation of the European state.

22/ Exception should be made here for the unique colonial experiences of the U.S. and Canada.

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order.3' The liberal state is the keeper of the rules, the neutral arbiter of disputes and enforcerof the results of economic and political competition, and its policies reflect societal preferences.As a construct, the liberal state is contentless; hence it can be called the procedural state."'

In the late, non-European pattern of state formation, on the other hand, society does nottransfer rights to the state, but is rather supposed to derive partial rights from the state; and thestate is not socially limited in its extensive mandate. This pattern can be taken to analyticallysummarize both state building processes and societal formation in the developing world.

None of the Latin American, Asian, or African societies ever truly experienced theliberal state, not even as a paradigmatic construct, until very recently. The establishment ofcolonial states was a necessary prerequisite for the generation and organization of all economicand social activity in these areas, and the state therefore preceded social classes and groups andtheir interests. Subsequently, with independence, there was no move to curb the size or limit therole of the state. This state is not neutral or contentless, but has to have purposes anddirections. By virtue of its anticipatory and creative role, it may be called demiurgic.5'

The discontinuity in the behavioral logic of the state, from the social environment inwhich it originated to the contexts in which it was later replicated, is a notion critical to the ideaof governance presented here. More precisely, the behavioral discontinuity between theprocedural state of Western democracies and the demiurgic state is the basis for proposing thatconceptions of governance that rely solely on the attributes of the Western states cannot explainthe problem of governance, as revealed by current adjustment attempts, in many developingcountries.

23/ The liberal state is in fact rather anachronistic in that it conforms poorly to many features of contemporaryWestern states. Even in societies committed to a liberal ideology, states have undergone substantial changesthat have subverted crucial premises of this ideology. To the extent that this commitment has not beenabandoned, i.e., that the principles of legitimacy that support the state are still consensualist and minimalist,there is a resulting tension in the exercise of public authority. See, in this respect, Lowi (1979), whodescribes the survival of liberalism as the main ideology in the American political system, where the systemis condemned to be justified by the same principles that in practice it subverts.

24/ The construct of the procedural state is generally consistent with the modern state as it is defined by therules and institutions approach to governance. See pp. 20-21.

25/ The term demiurgic as applied to the developing country state was suggested to me, in oral conversation,by Wanderley Guilherme dos Santos. Since the first draft of this paper was written, it has come to myattention that Peter Evans (1992, p.3) makes use of the same expression. He himself attributes the originalusage to Martins (1977).

- 20 -

We have suggested that the origins of the demiurgic state can be anchored in the historyof developing countries. But neither tradition nor historical inertia alone can account for theprevalence of this state in countries that have undergone so many radical and fast paced changes.The pages that follow will attempt to explain the conditions that have persistently reproduced thisstate, by presenting an analytical summary that is historically consistent with the major patternsof political and social development in most of these countries.

States and the Distribution of Power in Society

If one assumes that the procedural state: a) provides and enforces compliance with thelegal-juridical framework to manage competing interests in society,26' making no claim on thecontent of the rules other than to ensure that they are universally applied and provide (formal)equality of access to competition; and b) condenses the result of this competition into nationalpolicy according to established mechanisms of interest representation and aggregation; and if oneassumes also that competing interests are unequally empowered or resource-endowed--one wouldstill know nothing about the resulting configuration of interests that would be translated intopolicy. In other words, these assumptions do not, in themselves, prevent the most powerful orbetter-endowed societal interests from informing or controlling the content of policies.

The procedural state does not have any built-in mechanism to make it immune from totalcapture--i.e., to prevent public policy from becoming synonymous with the promotion of themost powerful interests in society, in which case the state ceases to exist as a public entity anditself becomes private.7' The reasons this does not happen--i.e. the conditions which make itpossible to conceive the state in its procedural format--must then lie outside the state'sparameters.2 8 '

26/ Briefly, this includes the provision of the rules of the game and the rules to arbitrate conflict over theserules, plus the institutions to enforce both the rules and the results of the game.

27/ The condition of total capture is of course a lirmited case. Capture can occur to such an extent that, whilefalling short of dissolving the state, it can nevertheless considerably compromise the effective promotionof public policy.

28/ Other explanations for the problem of capture in liberal or procedural states have been presented in theliterature. They range from the contention that individuals' memberships in several groups of variedinterests ultimately neutralize the biased impact of very powerful groups and attenuate political conflict(Dahl, 1961), to the classical liberal prescription that governments should be kept smnall so as to minimizethe amount of rents to be captured (Buchanan, 1980).

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The idea suggested here is that the existence of any state--or the conditions for its relative

autonomy from society--might be contingent on the distribution of power or resources in society.

The procedural state in particular might be contingent on a specific configuration of this

distribution; indeed, the construct of the procedural state has probably been useful analytically

only to the extent that it has been applied to societies where this specific distribution of power

has typically obtained. This distribution makes no claim to equality; it only requires that no

single interest or group of interests be powerful enough to capture the state at the expense of all

others. In the absence of any societal interest that can establish absolute hegemony in the control

of the state, every interest, and particularly the most powerful interests, will have a strong stake

in preserving the status quo, i.e., in the "formally" neutral enforcement of the rules that

guarantee competition.

Indeed, any attempt to abandon this neutrality limit--any compensatory mechanism

affecting the results of competition, any distributive policy initiative, and many regulatory ones,

for instance--will be marked by increased political tension from those interests not benefitted by

such action. On the other hand, in areas where state action is not perceived as intervention in

zero sum games--foreign policy issues that do not involve major budget transfers, for instance--

there is greater potential for consensus, or at least more scope for formulating and implementing

national policy goals.

Notwithstanding the difference in analytical perspective, the work of Poulantzas and and

that of the stream of neo-Marxist analyses that have further developed this author's conception

of the problem of the relative autonomy of the state, are basically consistent with the argument

here."' It is precisely the permanent dispute among the different societal interests--or class

fractions--for control of the state or public policy that causes the disputing interests to converge

29/ By introducing the notion that the dominant capitalist class is in effect split into different fractions (which,in Poulantzas' argument, correspond to the different types of capital), and by further distinguishing the short-and long-term interests of this same class, Poulantzas has accomplished the difficult theoretical task of

explaining why the public promotion of policies that might not conform to the interests of the dominantclass is compatible with the Marxist claim that the state is the political instrument of class domnination. Theargument is that the short-term interests of different fractions of the capitalist bourgeoisie are constantlyat odds with one another, and that public policy will reflect this conflict to the limit where the survival ofthe capitalist state--or more precisely, the survival of its mode of production--is in jeopardy. At that point,the long-term interests of the bourgeoisie will converge to preserve the status quo (Poulantzas, 1973).

Undressed of this Marxist coloring--that is, minus the social class as the necessary behavioral unit and theclaims that the state is the political superstructure of a system of economic domination--the explanation ofthe relative autonomy of the state has some similarities with the argument presented here.

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in maintaining the framework that reproduces, organizes, and enforces the results of the dispute

itself. The political space within which the existence of the state is defined is therefore bound

by the mutual checks imposed by every interest aspiring for state control on all other aspiring

interests. The checks will be effective as long as the actual possibility of one groups achieving

sustainable hegemonic control is absent.

This system of reciprocal vetoes is the source of state power, of its relative autonomy

from society, and of its survival as a public entity. It is also the basis of the assumption that

the procedural state alone is sufficient to provide an enabling environment for sound economic

policy, or for policy that, resorting to classical liberal imagery, is not distorted by the private

passions of politics.

If governance capacity can be plausibly conceived on the analytical basis of the

procedural state, not because of any intrinsic feature of this construct, but only because it is

supported by an empirical affinity that is exogenous to the construct itself, how can governance

capacity be conceptualized in an environment deprived of this affinity? Or in other words, how

to understand the state, when the conditions for its survival as a public entity are absent?

The specific configuration of power and resource distribution that has made the state

possible in Western liberal societies, has historically seldom obtained in the societies of

developing countries. Rather, these societies have been characterized by a high degree of

resource concentration, with very powerful groups often in a position to exert considerable

control over public policy or even to capture the state. Indeed, these states have been so typically

prone to capture that the boundaries between the state and society, or between the state and

private interests, are in continual danger of being dissolved. Moreover, they do dissolve on

occasions; one has only to think of Somoza's Nicaragua or Idi Amin's Uganda to know that the

existence of the public state in developing countries cannot always be taken for granted.

In the absence of the conditions that have historically provided a certain degree of

autonomy for the state in most Western countries. the survival requirements and the logic of

behavior of the developing states have to be explained by other factors. The nature and

governance capacity of the procedural state are insufficient to explain the developing state and

the conditions under which it is capable of promoting effective economic policy.

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Governance and the Demiurgic State in Developing Countries

Capture is not, of course, a fixed quantity. Any state can absorb substantial amounts of

penetration by private interests, and indeed, most states do. But the more autonomous a state is

from society, the more effective it will be in aggregating diverse and diverging social interests

into policy. With minimal autonomy standing as a primary condition for a state's survival, it is

clear that the perennial challenge confronting the developing state has been to find or create a

source of power independent from that of the very powerful interests that threaten its survival.

The idea suggested here is that one of the primary ways through which the developing

state has historically managed this challenge has been the attempt to differentiate its goals from

those of competing interests in society. More specifically, state autonomy has been often

contingent on the state's ability to formulate and convincingly present a meta goal, a sense of

direction, a vision of the future that, by ordering a larger social universe than the ones pictured

by particular interests, would simultaneously hierarchize and distribute new identities to these

interests as parts of a meaningful whole.

Not all states have been able to face this challenge, and of the ones that have, not all

have succeeded over time. Quite often, in fact, developing states have stood dangerously close

to the extinction frontier, where, unable to deploy alternative sources of power, the capacity to

provide law and order, i.e., to regulate conflict according to established rules, has been seriously

jeopardized. And even when not at the crisis point, these states have typically been characterized

by extensive penetration of powerful private interests into the process of policy formulation and

implementation, which compromises their capacity to minimally represent the aggregated interest

of society as a whole.

It is precisely the tension imposed by these conditions, and the need for the state to

supersede them so as to guarantee a wider survival margin, that can explain the historical

continuity of the demiurgic state as the model for state behavior in most developing countries.

The continual need to anticipate society, to generate new realities that are not yet under the

control or on the agenda of powerful interests, becomes the primary means for not succumbing

to the control of these interests, and for simultaneously resolving disputes among them.

For developing countries, therefore, governance capacity can be defined on the basis of

the analytical construct of the demiurgic state--a state that can effectively provide law and order,

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an enabling environment for economic and social activity, and a national policy--only to the

extent that it can achieve sufficient autonomy from society by articulating a vision of the future

that is distinct from, and goes beyond, the diverse interests in this society.

This vision is not necessarily a full-blown developmental model, although in the past fifty

years it has often acquired this role; this helps explain the periodic emergence of powerful

development states that are able to organize and drive societies in the pursuit of the meta goals

of industrialization and growth (or of the better distribution of the benefits of that growth).!-' But

alternatively, the vision can center on problems that have been important in the history of a

given society, such as independence, nationalism, an identifiable common enemy, post-war

reconstruction, or even ethnic or religious autonomy, and can frame them anew.

The more consistent the vision is with the existing political culture or social experience,

as represented by culture in general, the easier it will be to make it consensual and to amass

support for it. This will be particularly true if the operation of the vision entails extensive or

permanent losses to groups that have the power to effectively contest it; at some level, real or

symbolic pay-offs have to be distributed to these groups. The more readily the losses can be

subsumed in a system of ideas where they can be made to represent a positive trade-off -- by

introducing a counter-factual scenario where long- or medium-range losses could be larger or

more permanent, for instance -- the less expensive it will be to buy off or reward these groups.

The Latin American experience with import substitution industrialization in the mid and

late 1950s is very telling in this regard. Powerful agrarian export interests, which had tended

hitherto to exert extensive control over policy, were not only dislodged from power and deprived

of a large part of their income with surprising ease, but actually acquiesced to profound and

irretrievable changes that greatly diminished their role as major economic and political players.

The policy objectives centered around domestic industrialization, but the vision successfully

integrated the ideals of nationalism, political autonomy, and economic self-sufficiency, and

contrasted these ideals to the countries' humiliating past experience of total dependence on

imports and vulnerability to sudden and great fluctuations in international commodity prices.

30/ Evans identifies three types of states in developing societies, and defines them according to the "way inwhich they affect development. " His typology opposes 'predatory' states, such as Zaire to "developmental"ones such as Korea, with intermediary ones such as Brazil somewhere in between (Evans, 1989).

- 25 -

The main conceptual proposition of this paper is that positive governance in developingcountries depends on the state's capacity to provide a meta goal or meta idea that serves as theorganizing principle of a changed society and endows the state with the power to withstandcapture from private interests. This conception of governance suggests that the capacity toenforce law and order and promote effective policy is contingent on state autonomy, which inturn is contingent on sources of state power distinct from those of the major economic playersin society, which, finally, is contingent on the state's ability to project a culturally bound visionof a reorganized society.

Governance capacity is also understood as a double dynamic. First, it refers to steering,to statecraft (Malloy, op. cit.), to the conduct of government, rather than to institutionalattributes of its machinery or bureaucracy. And second, this capacity is constrained to constantlyproject change, to envision a society in motion. This creative rather than arresting mode, inwhich the dynamic quality of governance is manifested, distinguishes it from definitions thatemphasize institutional capabilities, since institutions tend to record and encapsulate socialbehavior and processes."

The demiurgic state, which is the analytical construct behind this conception ofgovernance, also synthesizes the logic of behavior of the developing state. Articulating this logicwill help to explain how a state that has chronically exhibited so much weakness in relation tosociety can also have its extensive political mandate towards this same society continuallyreaffirmed.

The Behavioral Logic of the Developing State--Uncoupling Scope and Capacity

There are no inexorable structural constraints can that reduce the number of ways inwhich developing states can conceivably expand their governance capacity, as long as they arein possession of fertile visions or meta ideas. In presenting a behavioral logic of the state,

31/ According to North, institutions are constraints devised to shape human interaction; they can be both formal(rules) or informal (conventions and codes of behavior) (North, 1990, p. 4). In this sense they are simnilarto the notion of language, or regimes. What North does not include in his definition are organizations --which he defines as groups of individuals united by a common purpose. In this regard the present approachparts way with the author; institutions are more than the sum of their constituent parts. The emphasis oninstitutions as constraints does not imply that institutions do not change or that they invariably precludechanges in social behavior.

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therefore, no claims are made that a particular behavior is the only behavior that could have

developed. To the contrary, it is quite clear that was not.

Rather, the behavioral logic of the demiurgic state fits a particular pattern of events that

conforms to many but not all developing states. Any intervening factors might have prevented

these states from following the pattern; and indeed, to the extent that they did, they are relevant

material for understanding how governance capacity, or the lack thereof, can affect adjustment

responses.

Typically, though not necessarily, when developing states have articulated the vision that

allowed them to expand governance capacity, they have simultaneously expanded the scope of

government. In the process of anticipating society, of creating new economic realities for which

the relevant agents and productive factors were either absent or insufficient, these states have

increased their regulatory, financial, and directly productive presence in the economy. They have

also, in so doing, generated a new range of societal interests associated with the economic

changes brought about by the new visions. These new interests have constituted a strategic asset

for developing states, which could use them as political leverage against established interests and

thereby increase state autonomy. However, the demands of new and old interests had to be

accommodated, and the practice of managing often acute political conflicts through payoffs,

traditionally based on public resources and employment, has reinforced the tendency towards an

overgrown political apparatus with an extensive and complex system of patronage, spoils, and

captured rents.

A crucial derivative of both this form of conflict management and of the demiurgic

quality of the state in anticipating society is that interests tend to derive their position, and the

resources they can command, from the state itself, or from their proximity to it. The economic

dependence of these interests on the state leads them to engage in a pattern of dispute over state

resources that is, in nature and in acuteness, different from that of similar disputes within the

procedural state, where private interests are much more economically independent from the state.

In the context of the demiurgic state, therefore, not only is the scope of the state's presence in

society expanded, but the state itself is the arena of economic competition.

For most developing countries, the processes of expanding the scope of state interference

in the economy, and of managing conflict by lodging interests within the state (through grants,

auctions, or trading of public resources), are inherently compatible with the underlying political

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culture. Political incorporation of new or old interests into the state apparatus, and a strongly

intervening state, are actually evidence of continuity in the pattern of state-society relations, and

therefore are entirely congruent with the expectations derived from past experience. Thus an

expansive and expanding state mandate is reauthorized by society, without any perceived break

with the status quo, every time a new vision or organizing principle mandates an expansion of

governance capacity.

Expanding capacity by expanding the scope of government, however, and incorporating

both old and new interests into the state apparatus, makes the developing state increasingly

vulnerable to capture, and in fact mortgages its very autonomy. Because the other face of

political incorporation is state penetration, the very logic of behavior that propels the state to

expand in order to increase its maneuverability vis-a-vis powerful interests, compromises this

very maneuverability and expands the potential for capture.

In his analysis of agricultural policies in Africa, Bates (1981) shows how post-colonial

states, in their quest to promote urban industrial development, devised mechanisms to extract

resources from agriculture and channel them to industry. These policies created rents and

constituencies that benefitted from the redistribution, namely urban industrialists, the urban

working class, urban bureaucrats, and part of the rural elite. Eventually, when the heavy taxation

of agriculture resulted in declining agricultural productivity and shortages, the governments were

unable to reverse these policies because they could not resist the pressures of these newly

empowered interests.

The development of Bolivia is another example of expansion of the state's scope being

accompanied by deterioration of its governance capacity. After the revolution of 1952, state

intervention in the economy increased through the expansion of the public sector. Public

employment was used to incorporate new groups, especially the urban middle class, and became

one of the main forms of patronage. Consequently, "the state apparatus became either a

desegregated set of agencies captured by self-interest or a patronage power wanting to maintain

itself as such" (Malloy, 1991, p. 45). Distribution of public jobs as a form of incorporation and

conflict management was not limited to Bolivia. Throughout Latin America, recruitment of

bureaucrats was a major mechanism of expanding and maintaining the states' constituency.

"During crises, leaders created new government jobs and boosted wages to prevent inflation

from eroding bureaucratic salaries" (Ames, 1987, p. 213).

- 28 -

In such cases, the state can become too weak for effective action if the vision falters, orif the reorganized society stops delivering the benefits promised by the vision, or even if politicalconflicts cannot be resolved through further rents or payoffs. No power--understood as aspendable quantity (Malloy, 1991 )--can be deployed from an overgrown and over-captured stateapparatus.

Thus, either the state is ahead of society, operating a vision and trying to maximize itsinsularity from society--a predicament likely to be favored as a way to guarantee its survival--orit might fall victim to the very processes that made it autonomous, in which case public policymight start to reflect the interests of powerful players whose interests are lodged in the stateapparatus. The cycles of governance expansion and contraction in developing countries,understood on the basis of the behavioral logic of the demiurgic state and on the conceptualdivorce of scope and capacity, can usefully describe much of the political history of thesecountries.

On the Concept of Governance

The argument developed so far makes it possible to directly address the conceptualquestions raised in the first section of this paper. Governance refers to capacity, as governmentrefers to scope. Governance is the uncoupled dynamic quantity of government, the latterunderstood as the norms, processes, instruments, and institutions that comprise the stateapparatus."' Governance is also the steering quality manifested in the state's conduct of policy.But most importantly, governance is about power. While the ensemble of institutions ofgovernment are intrinsically devoid of power, and are in fact power-consuming, governancerefers precisely to the capacity to generate, to deploy power from society; and the exercise ofgovernance is foremost the exercise of state power.

Insofar as the original minimal mandate and the defining conditions of the state lie in itsability to provide law and order, a concept of governance should convey this defining feature.That is, governance should fundamentally designate the capacity of the state to organize socialand economic activity according to rules, and to enforce compliance with those rules. However,because society is the only latent source of power, the state's capacity to exert power oversociety is contingent on its prior capacity to deploy power from it.

32/ All of these can be subsumed under the notion of institutions.

- 29 -

This paper has suggested that in most Western developed countries, the state generatespower out of the societal impasse created by the impossibility of any powerful interest imposingand sustaining total control over all the others. On the other hand, in most developing countries,where this impasse traditionally has not occurred, state power has typically been generatedthrough the state's articulation and promotion of a projected vision of a renewed society. Insofaras the concept of governance should designace not only what the state exists to do (its mandate)but also that which permits it to exist in the first place, the concept as it pertains to developingcountries should convey the state's capacity to provide this vision of renewal.

In this sense, governance may well be a new idea, but the phenomena to which it refersare not new. Governance shortages are chronic, endemic features of developing states, andcontinually compromise the effective promotion of economic policy. Governance crises takeplace when the state's capacity to deploy power is so low that it has difficulty providing law andorder; but by then policies have already become inconsistent, erratic, and unsustainable,reflecting extensive private penetration of the state and its corresponding loss of socialcredibility.

By the logic of the demiurgic state, governance capacity is more likely to manifest itselfin spurs, particularly when the state, operating a culturally bound vision and increasing itsinsulation from social pressures, manages to successfully steer social and economic change.However, even then the state might only be buying time. This will be true if the increase ingovernance capacity results from the practice of lodging interests within the state, because theseinterests will eventually capture the state. So expansion of governance capacity is possible butintermittent, or unlikely to be sustained.

Thus, the supply of governance in developing countries follows an imperfect cyclicalpattern: chronic sub-provision of governance might be punctuated by contingencies of expansionwhen visions are operative, and of sudden contractions when crisis situations replace thosevisions. As governance capacity is a major constraint on policy, the conditions that allow foreffective promotion of economic policy are unstable at best. But, on the other hand, the natureof the economic tasks to be performed, the substance of the policy targets, and the degree oftheir compatibility with the existing political culture, all influence governance as well.

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Governance and Adjustment in Developing Countries

It is in this intersection of mutual causality that the challenge of adjustment comes intoplay. For developing countries whose historical patterns are epitomized by the demiurgic state,the conditions for successful adjustment hinge on articulation of adjustment as a projected vision,a meta idea, on the basis of which social and economic activity and processes can be reorientedand policies can be informed and implemented.

The particular imperatives of adjustment, however, substantially complicate the task ofprojecting and promoting such a vision. They not only prevent the state from increasing itsgovernance capacity the traditional way, by expanding its scope, but--since the contraction ofgovernment is a main constitutive goal of adjustment--they also deprive the state of its abilityto ease the adjustment by distributing payoffs and compensations.

There is also another way in which structural adjustment is intrinsically difficult for thedemiurgic state to absorb and promote. The content of the adjustment message runs diametricallyopposite to the existing political culture in most developing countries. Two central axes of thisculture, the demiurgic state itself and the romance with autarchy, have recurrently andsuccessfully been translated in meta-ideas before, and the association between those ideas, onthe one hand, and growth and development, on the other, seem natural or inexorable. To re-represent the ideals of nationalism, independence, and self-sufficiency, all of which are dear tothe political imagery of developing countries, within the framework of structural adjustment asa projected vision, is, in itself, a challenge to the exercise of governance.

The other side of the problem, however, is that, realistically, adjustment is not a matterof choice for developing countries because non-adjustment is quite costly. Simply on the basisof a changing world economic environment, failure to adjust does not leave countries the optionof maintaining the status quo; and in addition, the domestic economic realities that madeadjustment necessary are likely to further deteriorate in the absence of a successful adjustmentresponse. At the very least, greater uncertainty and macroeconomic disequilibria and slower ornegative growth are likely to create mounting pressures on the operation of the state. Inparticular, the incapacity of the state to manage conflict at a time when conflict is likely tobecome more acute, might very well precipitate a governance crisis.

- 31 -

This is precisely the situation confronting many African and Latin American countriestoday. Repeated partial, half-hearted, ineffectual, or failed "heterodox" attempts to adjust haveonly magnified the short-term economic difficulties of these countries. Loss of governmentalcredibility, rising inflation, recession, and widespread uncertainty have had the peculiar effectof simultaneously increasing the cost of new adjustment attempts and of doing nothing aboutthese problems as well. Meanwhile, the minimum governance capacity necessary to maintain lawand order can be jeopardized. In Brazil, where the last decade records a series of announcedgovernmental decisions to implement adjustment measures that never did hit the ground, theCollor government came to power with an unambiguous agenda of adjustment policies. Theagenda was phrased in terms of a "modernizing" project in order to avoid the liberalizationlanguage likely to incite widespread ideological resistance from diehard ISI (Import SubstitutionIndustrialization) believers and from a political culture that generally equated a protecteddomestic market with sovereignty. A few years later, the adjustment agenda has notmaterialized, inflation seems out of control, resumed growth has remained elusive, and thecredibility of the government has all but vanished, with support for a renewed adjustment agendabeing highly unlikely. Most seriously, though, dangerous assaults on the government's capacityto maintain the rule of law have been mounting, as highly publicized corruption scandals gounpunished and private drug and crime gangs take control of cities' neighborhoods.3'

There is yet another sense in which non-adjustment is not a realistic choice. Budgetsultimately do have to be balanced, and eventually all countries adjust in one way or another. Inthe absence of a policy framework designed to eliminate the root causes of disequilibria--suchas protection of inefficient productive activities, rents that exceed the government's capacity toraise revenues, or the inability to relax foreign exchange constraints--the adjusting variablebecomes national income. Hence, the real choice is not adjustment or non-adjustment, but thelevel of national income at which adjustment takes place.

Structural adjustment may well be an extremely demanding challenge for most developingcountries. It is seemingly at odds with the demiurgic state and with the provision of governancecapacity as defined by this state. That is to say that, the behavioral logic of the demiurgic statemakes the governance capacity of developing countries contingent on adjustment becoming an

33/ The recent congressional investigation of a still ongoing presidential impeachment process, pushed bywidespread intense popular outrage with corruption at the top executive level, has introduced a new variableinto the Brazilian political scenario. Although these are positive developments, the outcome of this processand its implications for the mode of operation of the political system are still uncertain.

- 32 -

effective vision or meta idea. Given the particular content of adjustment measures, this mightbe quite difficult, but it is not impossible. In fact, a number of successful ongoing adjustmentexperiments, such as those of Mexico and Argentina, could be understood in this light. Therelevant research questions in such cases are not only why and how these experiments weresuccessfully implemented in the first place, but also how long they can be expected to last.

Yet, all the difficulties notwithstanding, the acuteness of the political and economic crisesthat many developing countries face at this moment might provide them with a singularopportunity to either partially exit the demiurgic state or to substantially alter the exogenoussocietal conditions that have informed its behavioral logic."'

Adjustment Perspectives: Exiting the Boundaries of the Demiurgic State?

Governance capacity is not, of course, the single independent variable constrainingadjustment responses, and not even the single political variable affecting adjustment. Therelationship posited here between governance and adjustment is also affected by other factors,most of which are beyond the scope of this paper. A few of these factors, however, are relevantto the argument developed here, insofar as they might modify the hypothesis concerning thegovernance-adjustment relationship.

Some variables seem particularly to impact the possibility that an effective adjustmentvision can be coherently formulated and implemented. The timing of adjustment policies,especially as they relate to different conditions obtaining in the international economy, might beone of them. If shifts from import substitution in the direction of greater reliance on externalmarkets were made before the debt crisis intensified, there seems to have been more room fortrial and error and for export learning, as well as greater availability of financial resources toease the transition costs. An argument in this direction could certainly be made for the cases ofKorea, Chile, and Turkey.

According to Haggard and Moon, "the East Asian NICs entered the export game at anhistorically auspicious moment. Rapid world growth facilitated Korea's entry into the worldtrading system. By the time protectionist pressures and slowed macroeconomic conditionsmanifested themselves, Korea had developed a flexible state policy apparatus and a set of

34/ This may prove to be not only a means to effect adjustment, but in reality, a more lasting solution to theproblem of sustained growth and development.

- 33 -

domestic firms seasoned to international competition... Successful 'association' is partly afunction of timing" (1983, pp. 186-187).

Furthermore, in the context of Korea's move towards liberalization in the early 1960s,the availability of resources was a crucial determinant. "Foreign capital, in the form of directinvestment, borrowing, and multilateral aid, became an increasingly important component ofKorea's strategy. The outward turn in trade went hand in hand with the increased use of foreigncapital" (Haggard and Moon, 1983, p. 149.)

Turkey also benefitted from similar benevolent timing. A foreign debt crisis hit Turkeyin the late 1970s; by the time the international debt crisis was precipitated in the early 1980s,and international financial flows were greatly reduced, Turkish debt payments had already beenrescheduled in a relatively more benign environment, and an adjustment program supported bygenerous resource transfers was already underway.3'

Another variable affecting the governance-adjustment relationship could be whether theeconomic crisis is perceived as acute and widespread and the prior mode of economic operationhas been discredited (Nelson, 1990). This situation seems to directly ease the way to an effectiveadjustment vision, as in the case of Mexico. The sudden oil boom and bust immediatelypreceding Mexico's dramatic precipitation of the debt crisis had the effect of sharply raising andthen dumping income expectations in the country, which contributed to a general sense ofdeadlock that might have been effective in moving the country towards adjustment.

And of course, there remains the inevitable weight of the uniqueness of specificcircumstances. Again, Korea's success in incorporating the shift towards export promotion andliberalization into a vision that conveyed the goals of political autonomy is relevant here. "Anexamination of the political forces behind liberalization demonstrates.. .that it was motivated bythe quest for increased autonomy from the United States on the one hand, and domestic politicalconsolidation, on the other" (ibid., 1983, p. 153.).

Similarly, one of the interesting adjustment efforts in the 1980s was in Turkey, wherereformers, primarily Ozal, succeeded in convincing the public, especially the middle class, thatthe country had to embark on a new path of development in which markets and competition

35/ For an account of the Turkish debt crisis, see Celasun and Rodrik (1989).

- 34 -

would play a primary role. "To win political support for his program, Ozal also exploited thetheme of the absence of an alternative economic program, in improving the performance of theeconomy directly..." (Onis and Webb, 1992, p. 50). "He was able to project ANAP [thegoverning political party] as a new party of the 1980s, with a novel economic program, whereasother parties represented a continuation of the pre-1980 politics whose policies had already beentried before and had ended in abject failure" (ibid., p. 15). Indeed, the popular willingness toendorse Ozal's pronouncements as a new plausible new vision for the future was reflected in thecritical endorsement that Ozal found among intellectuals who were traditionally associated withthe Left.

Salinas' bid for an adjustment and liberalization program in Mexico also counted on avery specific constellation of political developments. The 1980s had witnessed severe challengesto the political system, virtually bringing its prevailing mode of operation to a halt. First, therewas an increasing tension within PRI between the traditional politicians (politicos) and thetechnocrats (tecnicos), with the latter advancing an economic project that emphasizedliberalization and privatization and pushing for a more open and competitive political system.Second, there was a "breakdown of consensus between the private sector and the political eliteregarding the state's role in the economy" (Cornelius, Gentleman, and Smith, 1989, p. 13). Inaddition, there "was the weakening of the corporatist system of interest representation andpolitical control" (ibid.).

Despite these successes, however, the conditions under which developing countries caneffectively articulate and implement a vision of adjustment, without making major departuresfrom the boundaries of the demiurgic state, can only be identified through long-term research.Even where the necessary conditions might seem apparent, as in the successful case of Korea,however, the story is not fully known (Evans, 1989, p. 575), mainly because the durability andresilience of these successes are not assured. Ultimately, the cycle of governance expansion andcontraction that characterizes the demiurgic state could in fact be resumed.

In Turkey, the new vision found natural allies among large business groups, a significantproportion of which were able to easily restructure their productive activities towards exports.While the imperatives of outward orientation and international competition have been widelyaccepted, at least superficially, however, Turkey has not so far not been able to solve two majorproblems that severely constrain the continuation of adjustment, namely agricultural subsidiesand the financial losses of state-owned enterprises. Unwilling to antagonize rural interests (which

- 35 -

have traditionally been an important source of votes), and state employees (the dislocation ofwhom would likely cause severe social tensions), and unable to come up with schemes thatwould compensate for the losses of these groups, the Turkish government has consequentlyavoided tackling some of the root causes of budget deficits that are currently threatening itsadjustment efforts.

In effect, the conditions that allowed some countries to adjust might not allow the ensuinggrowth to be sustained. Actually, given that most countries experience the periodic need foradjustment, the same conditions might not allow them to adjust the next time around. That is tosay, while bound by the logic of behavior of the demiurgic state, countries might overcome theinherently difficult challenge of adjustment; but sustained growth and development might liehopelessly beyond the capacity of this state.

Ultimately, overcoming the chronic sub-provision of governance capacity--that is, exitingthe boundaries of the demiurgic state--depends on developing states' ability to acquire a lastingsource of autonomy from the competing interests of society. This might require a morepermanent empowerment of some social interests (such as the middle classes) relative to others,which would entail the government interfering in the distribution of assets or endowments ratherthan continuously intervening in the market outcomes of economic competition as a form ofconflict management and power deployment. Acquiring autonomy might also demand theweaning of private interests out of the state so that the survival or success of these interests doesnot remain so essentially attached to the capture of rents, spoils, and public resources.

Korea might be an interesting test case. Even though adjustment policies of the 1980sincluded elements of liberalization (especially in financial markets and trade policy), they didnot reflect a fundamental break from the prevailing vision. Did they, however, constitute a movebeyond the boundaries of the demiurgic state? While subsidized credit programs targeting largecompanies were either eliminated or reoriented towards small and medium firms, suggesting anattempt to finally wean large corporations out of the state, the fact that the state played a primaryrole in the massive industrial restructuring effort means that it is too early to reach a conclusion.

Although sustained growth and development appear to be ultimately contingent on exitingthe demiurgic state, this solution does not necessarily imply a small state. Given the fact that thepolitical culture is not likely to be radically transformed, and given the range of socialresponsibilities of the state in developing countries, it is possible that small states would be

- 36 -

neither feasible nor desirable. One could even speculate that it might take a demiurgic state toexit the boundaries of this same state. At any rate, the crisis of adjustment challenges thedemiurgic state to its limit. It also provides an unprecedented opportunity to supersede it.

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RECENT WORLD BANK TECHNICAL PAPERS (continued)

No. 219 Cercone, Alcohol-Related Problems as an Obstacle to the Developrment of Human Capital: Issues andPolicy Options

No. 220 Kingsley, Ferguson, Bower, and Dice, Managing Urban Environmental Quality in Asia

No. 221 Srivastava, Tamboli, English, Lal, and Stewart, Conserving Soil Moisture and Fertility in the WarmSeasonally Dry Tropics

No. 222 Selvaratnam, Innovations in Higher Education: Singapore at the Competitive Edge

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No. 225 Dia, A Governance Approach to Civil Service Reforin in Sub-Saharan Africa

No. 226 Bindlish, Evenson, and Gbetibouo, Evaluationi of T&V-Based Extension in Burkina Faso

No. 227 Cook, editor, Involuntary Resettlement in Africa: Selected Papersfrom a Conference on Environment andSettlement Issues in Africa

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No. 229 Webster, The Emergence of Private Sector Manutfactuiring in Hunlgary: A Survey of Firms

No. 230 Webster and Swanson, The Emergence of Private Sector Manufacturing in the Former Czech and SlovakFederal Republic: A Survey of Firms

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No. 232 Creightney, Transport and Economic Performance: A Survey of Developing Countries

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No. 235 Claessens, Risk Management in Developing Countries

No. 236 Bennett and Goldberg, Providing Enterprise Development and Financial Services to Women: A Decadeof Bank Experience in Asia

No. 237 Webster, The Emergence of Private Sector Manufacturing in Poland: A Survey of Firms

No. 238 Heath, Land Rights in Cote d'lvoire: Survey and Prospectsfor Project Intervention

No. 239 Kirmani and Rangeley, International Inland Waters: Conceptsfor a More Active World Bank Role

No. 240 Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of Selected Technologies

No. 241 Cernea and Adams, Development, Sociology, and Anithropology: An Annotated Bibliography of WorldBank Publications and Documents in Sociology and Anthropology

No. 242 Barnes, Openshaw, Smith, and van der Plas, Whlat Makes People Cook with Improved Biomass Stoves?:A Comparative International Review of Stove Programs

No. 243 Menke and Fazzari, Improving Electric Power Utility Efficiency: Issues and Recommendations

No. 244 Liebenthal, Mathur, and Wade, Solar Energy: Lessonsfrom the Pacific Island Experience

No. 245 Klein, External Debt Management: An Introduction

No. 246 Plusquellec, Burt, and Wolter, Modern Water Control in Irrigation: Concepts, Issues, and Applications

No. 247 Ameur, Agricultural Extension: A Step beyond the Next Step

No. 248 Malhotra, A Survey of Asia's Energy Prices

No. 249 Le Moigne, Easter, Ochs, and Giltner, Water Policy and Water Markets: Selected Papers andProceedingsfrom the World Bank's Annuial Irrigation and Drainage Seminar hleld in Annapolis,Maryland, December 8-10, 1992

No. 250 Rangeley, Thiam, Andersen, and Lyle, International River Basin Organizations in Sub-Saharan Africa

No. 251 Sharma, Rietbergen, Heimo, and Patel, A Strategyfor the Forest Sector in Sub-Saharan Africa

No. 252 The World Bank/FAO/UNIDO/lndustry Fertilizer Working Group, World and Regional Supplyand Demand Balancesfor Nitrogen, Phosphate, and Potash, 1992/93-1998/99

No. 253 Jensen and Malter, A Global Review of Protected Agriculture

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