State Building & state capacity
Politics and growth
Understanding the politics of growth
Authors:
P. Landell-Mills; S. Unsworth; G. Williams
Publisher:
The Policy Practice, 2008
A number of empirical studies highlight the link between political variables and economic outcomes. While these offer strong evidence of correlation, they do not explain causality, and provide little insight into the mechanisms by which political processes influence growth. This policy briefing paper presents a framework to help clarify these mechanisms and analyse how they operate in different country settings.
The main contention of the paper is that growth is strongly influenced by the nature of interactions between holders of state power (political and military elites) and potential investors. It focuses on the incentives facing these actors to explain why in different circumstances they interact in ways that may enable or hinder growth.
The paper identifies three political obstacles to growth. They are:
- predation or expropriation of assets
- rent-seeking or the capture of public regulatory power by private interests to gain access to economic rents
- patronage spending and looting or the diversion of public resources towards private interests
These political obstacles to growth are present to a greater or lesser extent in all countries, but are each broadly associated with different economic structures and stages of state building
Typically in OECD countries relationships between public authority and private capital are underpinned by widely accepted societal norms, formal rules and institutions that provide strong incentives for cooperation and that limit abuse by either party.
However, the problem in many developing countries is that they are still at early or intermediate stages of state building where institutionalised relationships and checks and balances are often weak, and there is no clear consensus within civil society on governance norms.
In these conditions there are likely to be inherent sources of tension between different holders of power that undermine growth. Moreover, holders of political power may have little incentive to nurture broad based development if they have access to external sources of wealth (aid and natural resource exports) that frees them from dependence on taxpayers.
