“Ethiopia Does not Qualify as a Developmental State”

Francis Fukuyama, born in Chicago, USA in 1952, is an American Author and Political Scientist. He received his B.A. from Cornell University in Classics, and his Ph.D. from Harvard in Political Science. Even if, Fukuyama has extensively written on political development and international political economies, he is more known for authoring the book entitled ‘the End of History and the Last Man’, on which he argued that the worldwide spread of liberal democracies and the free-market capitalism and the lifestyle of the West, may signal the endpoint of humanity’s socio-cultural evolution and become the final form of human government.
His other famous publication, ‘Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy’, is considered a masterful study of political development.
Fukuyama is currently a senior fellow at Stanford University in California. He is the Director of the Center on Democracy, Development and the Rule of Law.
In his latest book dubbed ‘Identity: the Demand for Dignity and the Politics of Resentment’, he asserts that the demand for recognition of one’s identity, which he deems a fundamental human instinct, is a master concept that defines much of the world politics today. In the book, the Japanese-American stated that the universal recognition on which liberal democracy is predicated has been increasingly challenged by narrower forms of recognition based on nation, religion, sect, race, ethnicity, or gender. If people no longer vote according to their values, such as an attachment to liberty, but by their identities, such as their faith or ethnicity, Fukuyama argues that democracy would cease to function. Indeed, identity is gaining centre stage in politics in many parts of the world today. Ethiopia is no exception.
Two months ago, the 67-year old distinguished professor, on his first trip to Ethiopia, met with Prime Minister Abiy Ahmed (PhD) and discussed on different matters. He gave his latest book on identity politics to the premiere.
Earlier this month, Fukuyama returned to Ethiopia again to train private sector developers. He also gave a public lecture at the American centre in Addis Ababa on “Populism and the State of Global Democracy”. In the sideline of the training, EBR’s Haimanot Ashenafi sat down with the global thinker to discuss about Ethiopia’s economic and political situations.

EBR: There is no consensus over the use of developmental state as a growth model in Ethiopia. Some say that a developmental state doesn’t necessarily mean that the state must have a big role in the economy; while the government argues differently. Can you reflect on this?
Fukuyama (PhD): The developmental state model was used in many parts of the world to override the market and favor certain sectors. This was very common in Asian countries like Japan, Korea, Taiwan and others. Markets by themselves don’t always give good signals about opportunities and failures. There are times where states should act to overcome these gaps by providing capital to critical sectors and coordinate the activities.

The problem with the developmental state model is less of an economics than politics because states often have goals other than development particularly on issues like fighting corruption. If the state begins allocating resources, it can oftentimes allocate them not on the basis of economic criteria, but on the basis of politics.

I think that is one of the reasons that the developmental state model has not worked in many parts of the world. This was a definitional issue, of course, but in many ways I don’t think that was the only problem. For instance, under the late Prime Minister Meles Zenawi, Ethiopia envisioned a developmental state that was modeled on South Korea, one of the Asian tigers with a very large and strong private sector. But I don’t think that Ethiopia actually was a developmental state in that sense because Ethiopia doesn’t have the kind of private sector that the Asian Tigers have.

There are private companies in Ethiopia, but they tend to be very small. Unlike Korea where there is a very large private sector. The real driver of economic development in Ethiopia is the state. The state played a much larger role than I have seen in most of the Asian developmental states. In retrospect, Ethiopia has been more like the former Soviet Union. It followed state directed development rather than a true developmental state that creates a partnership with the private sector.

So, a developmental state does not necessarily mean the state must have a big role in the economy?
Yes. The state is a partner with the private sector and I think here in Ethiopia, the state has been so dominant that it really doesn’t even qualify as a developmental state.

Ethiopia registered double-digit economic growth over the past decade by adopting a developmental state. This path is accepted especially by developing countries based on the assumption that a liberal model was dead, buried and is unworkable. Do you agree?
I don’t think the liberal model is dead. If you look around the world, it is the liberal model that led to economic successes in countries like China and India. China had a state dominated and centrally planned economy until 1978. After that, however, the country opened up its economy to international trade, allowed foreign investment, and let Chinese people to buy and sell freely without state direction. And so China is really one of the great successes of liberal economics. The same is true for India.

So a liberal model is far from being obsolete because it allowed India and China to register an impressive economic growth. Of course, there were problems with the liberal model because it went too far in the 1990s. In terms of privatization, attempts to prioritize sectors that were producing public goods like water, electricity and telecom did not work very well.

In the former Soviet Union, for instance, the privatizations were implemented very poorly and resulted in inequalities and the rise of oligarchy. In this way, the liberal model went too far. Before opening up an economy, having the basic state structures, property rights and rule of law is necessary. I would also like to underline that a liberal economy is not one without a state. Rather, it is one that has a strong state that restricts itself to maintaining and enforcing basic rules as well as political and other basic orders.

But at a time when neoliberalism is losing momentum in the contemporary world, how do you see the importance of a developmental state model?
The trouble is that these models are never universally valid. At an early stage of development, a strong state led push towards growth might work. But over time, it becomes less and less efficient because the state itself gets more rigid. It really depends on the quality of leadership. One of the reasons that the developmental state model worked well in Asia was because they have a very eponymous, highly efficient civil service and good political leadership. But in Pakistan, Argentina, and other developing countries, this was not the case. That is why pragmatic attitude is essential where you say sometimes a liberal model works and sometimes a state-led model works. But both depend on the specific conditions of a given country.

You have recommended a state-led model of growth at the early stage of development. Can you elaborate that?
It was like the situation Ethiopia found itself in the early 1990s when there was a huge gap in infrastructure. It was very difficult to develop without roads, electricity, ports and other basic public services. The claim often is that these can be best provided by states. That is why the state invested a tremendous amount of resources in infrastructural development. The trouble is that, once that level is passed, it’s not so clear what the state should be investing in. For example, Ethiopia is trying to create a pharmaceutical industry
through state investment, but that will not be competitive globally and it’s not going to survive without continued state protection and subsidies. This is an area where probably a more market driven development is needed.

A developmental state model often creates highly inefficient state enterprises, thereby leading to state capture. This is true for some Latin American countries where the state was exploited to make certain groups of people and the political elite super rich. The case is the same in Ethiopia. What is your take on this?
That is right. The problem with a state dominated economy is that the criteria for getting rich are more political than economic. So people that get rich are the ones that are politically well-connected rather than the people that have the best entrepreneurial skills or effective corporate leadership. This leads to a great deal of inefficiency, [and resource wastage].

You have said that the Asian tigers can be taken as evidence to state intervention as the best tool to ensure sustainable economic growth. But can these countries be a benchmark of growth to countries that have a different set of contexts?
The Asian tigers did several things. They favored certain sectors at an early stage of development. They protected infant industries and that worked well. But protection only works until the infant industry grows up. After that stage, the state must relax its protections and reduce its subsidies. That industry has to be told to go on its own and be competitive globally.

That is what South Korea did. They protected infant industries, but once they became competitive globally, the state stopped subsidizing them. This is what is really difficult for many developing countries because there is a lot of political pressure to keep up the subsidies.

In Argentina, for example, they tried to create an automobile industry through protection. But that automobile industry never became competitive globally. Nobody wanted to buy the vehicles outside of Argentina, yet the state continued to pour a huge sum of money into it. There are a lot of cases like this. The Indonesians have been trying to create a national aerospace industry. They really cannot do it because their market is too small for an aerospace industry. And so the government ended up wasting a lot of money.

The Asian Tigers are criticized for creating a highly censored political environment to achieve economic growth. Their success came at the expense of basic human rights. Can development and democracy be balanced?
How much the industrial policy depends on authoritarian government is a debatable point. To some extent, the two go together because the state has to be very strong and overbearing in a certain sense, economy and politics. But I think that the more important characteristic is that the state has to be autonomous in the sense of being led by people who have a clear developmental vision rather than simply wanting to enrich themselves.

The big problem in many developing countries and especially in Sub-Saharan Africa is that you do not have that kind of leadership. You have leaders that are much more interested in making their families wealthy than achieving the national goals.

Is it not possible to employ a developmental state model while under a democratic governance system?
That can happen. Japan has been a democratic country since the end of World War II and it is still a developmental state. In Asia, there’s a very long standing tradition of meritocratic bureaucracy. That comes from China, but Japan had that as well. So they had very powerful ministries that could make good economic decisions because they were staffed with highly educated people that really focused on national development. It is for that reason that the model worked in a democratic setting.

The other problem that arose because of the developmental state model employed by Ethiopian government is the huge demand it created, while overlooking the supply side of the economy. Do you think the country can work out the problems in the supply-side of the economy?
The problem with the state driven model is that the state mostly invests on the demand side of the equation. But, it is very difficult to sustain this. So if you look at what happened in Ethiopia, a lot of the investment has been driven by borrowed money. Its sustainability over the long run is unclear. Concerns over this supply-side economics are related with efficiencies. I think any economy has to worry about efficiency.

That is also a weakness of a state-led development because states do not have the right incentives and end up producing inefficient enterprises.

In countries like Ethiopia where there are diverse ethnic groups, it is very challenging to have meritocracy while recruiting appointees for government offices. However, during your public lecture two months ago, you stressed on having a quality public sector with officials appointed on the basis of skills. Do you think this is possible in Ethiopia, given the very diverse nature of the population and the divisions along ethnic lines?
You would have to be politically realistic. Ina country where ethnicity is as important as in Ethiopia, you cannot simply select the best persons regardless of what ethnic group they come from. So, a lot of attention is given to ethnicity, but the question is whether you can balance that demand for ethnically based promotion with concerns for skills, talent and education.

The other important thing to balance is the consciousness of an ethnic identity with a sense of national identity. There ought to be an Ethiopian identity that does not override ethnicities. I think, they can exist in parallel. People must feel that they are not just only a member of their ethnic group; they are also members of a larger national community. That is something the new leadership needs to do.

Do you think this is attainable in a short period of time?
It is not. It really has to be built into the hearts of the people and that requires education, leadership and experience. So it is going to take a long time.

In countries like Ethiopia where national identity is contested, what kind of economic model do you recommend?
The developmental state model should not be dismantled. I think it should be relaxed. However, the government here simply makes too many top down decisions in terms of economic policy and officials need to step back from that a little bit to permit society itself to organize itself.

It needs to step back in terms of regulation and allow the emergence of a real private sector. That is one of the big differences between Ethiopia and the Asian tigers, which have a strong private sector.

The current administration in Ethiopia seems to be in favor of liberalism. It has already planned to embark on privatization of major state owned enterprises and liberalize key sectors. What is your take on this?
When you privatize these inherently monopolistic enterprises like power, water, waste disposal and others, you can only do it if you have the capacity to regulate the private enterprises and make sure that their tariffs are fair and that they are in line with the broader public interest. A big mistake that was made by a lot of countries in the 1990s was that they privatized without having this kind of regulatory capacity. So, whether this was safe or not really depend on the capacity of the state to regulate. Either it is going to own those enterprises outright or it will have to regulate private ownership. But the worst situation is if you have private ownership without adequate oversight or regulation.

But many fear that the economic sovereignty of the country would be compromised in the light of the privatization and liberalization of the economy?
Ethiopia is too small to create a modern economy on its own. All countries need to have access to international markets. They need international technology and human resources, and all that come from other places.

If you look at the success of some of the coastal states that have better economic status today, it’s because they open up themselves to foreign expertise, capital and labour. Yet, they remain sovereign. In the Emirates, maybe only a tenth of the workforce is indigenous and they are still in control of their affairs. So fear of being dominated by foreigners is misguided. You need foreigners to develop because they are the ones that have the know-how on the technology and have the skills that a country like Ethiopia needs.

With regards to the identity politics you suggested, you have identified the signs of political collapse in some deeply divided countries. How do you see Ethiopia’s current condition from this perspective?
Ethiopia is really in danger. This is because there are a lot of ethnic groups that really do not feel a sense of national unity or they do not feel identified within Ethiopia itself. That is a very dangerous situation. We just saw the examples of Syria, Iraq, and Somalia. I mean there is a number of states nearby that have collapsed because they did not create an overarching national identity. That should not be the direction that Ethiopia should be going to.

What do you suggest to solve this before it is too late?
It really does depend on the emergence of the national identity. And that is something that should be cleared up by the leaders. People have to create an idea of an Ethiopia that has a balance of ethnic identities.

8th Year • Aug.16 – Sep.15 2019 • No. 77