Emerging Trends in The Social and Behavioral Sciences

The State and Development

Item

Title

The State and Development

Author

Cohn, Samuel

Research Area

Social Institutions

Topic

Government Systems

Abstract

The state and development is a critical issue in speaking to contemporary debates about whether prosperity is best served by small or large government. The definition of foundational versus cutting‐edge research differs depending on whether the discipline is economics or sociology. There was an early agreement that government should be big for “big pushes” or “modernization.” Economics turned antistatist as a reaction to Soviet planned economies and to corruption in general. This led to a neoliberal attempt to create growth by shrinking state programs—an initiative that failed very badly. New work in economics emphasizes flexible approaches as to what states should do, promotes states building education, infrastructure and encouraging technology transfer, and puts great weight on institutional quality. Sociology emphasized the state as a protector of poor nations from the predations of international trade and multinational corporations. Emphasis was placed on hard bargaining by states in the Global South and in developmentalist states such as those in East Asia, which administratively allocate public investment monies to overcome inefficiencies. New work suggests that more modest programs emphasizing simple public goods can be effective. Emerging work also questions traditional specifications of the adverse effects of international trade leading to a different set of suggested remedies. Future directions need to focus on palliative development—strategies of state development that build the multiplier effect rather than base industries. Methodologically, within nation studies that residualize employment from market factors offer ways to identify new government programs that are effective.

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Identifier

etrds0353

extracted text

The State and Development
SAMUEL COHN

Abstract
The state and development is a critical issue in speaking to contemporary debates
about whether prosperity is best served by small or large government. The definition of foundational versus cutting-edge research differs depending on whether the
discipline is economics or sociology. There was an early agreement that government
should be big for “big pushes” or “modernization.” Economics turned antistatist as
a reaction to Soviet planned economies and to corruption in general. This led to a
neoliberal attempt to create growth by shrinking state programs—an initiative that
failed very badly. New work in economics emphasizes flexible approaches as to what
states should do, promotes states building education, infrastructure and encouraging
technology transfer, and puts great weight on institutional quality. Sociology emphasized the state as a protector of poor nations from the predations of international trade
and multinational corporations. Emphasis was placed on hard bargaining by states
in the Global South and in developmentalist states such as those in East Asia, which
administratively allocate public investment monies to overcome inefficiencies. New
work suggests that more modest programs emphasizing simple public goods can
be effective. Emerging work also questions traditional specifications of the adverse
effects of international trade leading to a different set of suggested remedies. Future
directions need to focus on palliative development—strategies of state development
that build the multiplier effect rather than base industries. Methodologically, within
nation studies that residualize employment from market factors offer ways to identify new government programs that are effective.

One of the most fundamental issues in macrosocial science is the role of the
state in producing development. The question is not whether the state should
be big or small. Military imperatives are sufficient to guarantee that the state
will be big—for reasons of geopolitics in the core and for reasons of regime
maintenance in the periphery. The question is given a big state, what can or
should such a state do to guarantee development? One reason to ask such
a question is political. Candidates for election promise the voters that they
can generate economic growth and prosperity. Once they attain office, they
are expected to use the state apparatus to deliver on those claims. More so,
net of promises, if the elected politicians wish to do anything once in office,
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

revenues are required in order to implement any program of governance. The
state must promote economic growth in order to maintain its own finances
(Block, 1987).
The question of the state and development is also humanitarian. Most of the
nations who have industrialized effectively and raised their Human Development Indicators to an adequate level have done so on the basis of some
form of effective government policy. Explaining how this is done is important
in providing guidance to poorer nations who wish to do the same.
The debate about the state and development is also important from an intellectual standpoint. The fundamental debate between economics and sociology as disciplines has been about the comparative role of free markets
versus institutions in shaping social outcomes. The optimization algorithms
of economics are based on an assumption that the rational decisions of individuals making personal economic decisions aggregate upward to a market result that represents Pareto-optimality—namely, no one would be better
off if any decision were made other than that the market generated (Pareto,
1971). Yet, it is well known that states take actions that have political consequences. These actions are determined by administrative and political rather
than market processes. If states outperform free markets, this raises questions
about whether free markets are optimizing mechanisms at all; if states always
underperform a free market, this gives greater credence to the foundational
principles of neoclassical economics.
In this discussion, “the state” will refer to the administrative policies that
produce economic growth, either intentionally or unintentionally. For reasons of space, we will not discuss questions of macroeconomic management
such as monetary policy. The discussion here gives greater emphasis to
government “growth-related” programs such as state-led development,
providing physical and human capital infrastructure.
“Development” is used in the traditional sense of GDP/per capita. Development is a contested concept—and questions emerge between very real
contradictions between GDP/capita, the socially constituted “development
project” as capitalist ideology, ecological integrity, and the protection of
exploitable groups such as indigenous people or the poor (McMichael,
1996). These questions are vital but require too extensive a treatment to be
considered fairly here.
FOUNDATIONAL RESEARCH
The allocation of work in this area between foundational and cutting edge is
complicated by the fact that economics and sociology adopted different lines
of thinking at different times. What was foundational in one discipline was

The State and Development

3

rejected by the other, and what was cutting edge in one discipline was old
and familiar in the other.
Midcentury, there was somewhat less of a divide between development economics and development sociology on this point. Development
economists favored “a big push” in which the state would coordinate
simultaneous investments in infrastructure and capital goods industries as a
way of providing “everything an economy could need” all at once (Higgins,
1959; Rosenstein-Rodan, 1943). The argument was that poor nations are so
poor that no rational investor would invest in the large projects needed
to jumpstart industrialization. Only the state could generate confidence
in private capital markets by showing “so much positive change” was
occurring that previously nonviable investments were now feasible.
In sociology, modernization gave the state a parallel role. Here the emphasis
was less on investment in infrastructure and basic goods and more on breaking the cultural limits imposed by traditionalism and particularistic “tribal” loyalties. States produced “modern attitudes” consistent with Weberian
rationality and technological growth by promoting Western education, secular values, bureaucratic rules of universalistic administration, rule of law, and
the use of money and credit; they also created political entities and markets
large enough to be able to sustain the scale necessary to support economic
growth (Hoselitz, 1952; Parsons, 1971). The state provided a big push, which
was cultural and institutional.
However, over time, the economics profession moved toward a position of
strong preference for market forces and general hostility to the intervention
of government into the economy. Some of this derived from respect for the
power of the price mechanism in conveying information and concern about
any bureaucratic setting of prices that would interfere with prices being a
simple indicator of bona fide costs (Friedman, 1962). Some came from the
empirical observation of the consistently poor performance of state-run command economies in the Soviet bloc. Another source of skepticism was the pervasive corruption and clientelism that could be found in some Third World
governments.
Various purely theoretical models were developed in the Hayekian
tradition showing that government expenditure and taxation produced
deadweight losses for society (Ballard, 1985). However, the literature that
had the most impact on development economics was the political economy
or “rent-seeking” approach. Government bureaucrats were assumed to be
corrupt profit maximizers whose public office gave them monopoly control
over a product or service. They administer their office to maximize their
income from “rent payments”—a polite way of saying bribes. Note that
rent seeking involved a full range of rewards to private officials for the
distortion of public policy. Above and beyond simple bribes, there was the

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

intentional fomenting of clientelism through creating opportunities to “solve
problems” for constituents, and the self-interested expansion of the budgets
and powers of government offices for simple political reasons. The theories
would then specify the loss in national output or welfare that came about
because of this corruption (Krueger, 1974; Posner, 1975). One implication of
this framework was that the government bureaucrats would put as many
administrative obstacles as possible in front of citizens and entrepreneurs to
maximize potential opportunities to collect side payments—and these
regulatory obstacles would also impede firm formation and investment
simply from the red tape required for law-abiding citizens to get things
done. Empirical support for this world view came from the work of Hernando De Soto whose 1989 Other Path: Invisible Revolution in the Third World
painted a grim picture of bureaucratic obstacles to doing business in Latin
America. Subsequent research showed that de Soto’s nightmarish account of
stifling government red tape was highly exaggerated and that the time and
cost for small Latin American businesses of compliance with government
regulations was relatively modest (Tokman, 1982).
The antistatist bent of development economics became manifest in the
Washington Consensus and the rise of neoliberalism (Williamson, 1990).
The fall of the Berlin Wall emboldened state-haters. Just as Communism
falling represented the realization of a miraculous dream, the removal of
all government interference with the economy in the Third World now
seemed like another potentially reachable miraculous dream. Development
economists recommended a program of reduction of state budgets, privatization of public firms, deep cuts in the social safety net, and elimination of
tariff barriers, limits on foreign ownership of local assets, and repatriation of
capital (Sachs, 1994).
Sociology has generally had a prostatist rather than antistatist orientation
caused by an intrinsic concern for the adverse effects of market forces on
growth in peripheral nations. This position has been put forward by dependency theorists (Frank, 1967) and world systems theorists (Wallerstein,
1974); the adverse effects of international trade received particularly cogent
formalization in the theory of unequal terms of exchange, popularized
by Samir Amin (1976). Amin argued that trade between rich nations and
poor nations involves exchange of high-tech manufactures that involve
proprietary knowledge, for commodities that are technologically simple
and can be produced by a wide variety of nations. This allows the rich
nations to charge monopoly rents for their products, while the prices of
agricultural and extractive commodities are kept low by global competition
for sales and market pressure The core manufacturer is a price maker and
the peripheral farmer is a price taker; the result is a substantial transfer of
resources from the periphery to the core. The outflow of resources from the

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periphery to the core has been exacerbated by foreign direct investment;
multinational corporations in the Third World tend to repatriate profits from
their third-world subsidiaries to their home operations in the developed
world (Barnet & Muller, 1974).
Thus most postdependency theory models of the state and development
in the Global South argue that the state promotes economic growth by constraining market forces for the benefit of peripheral nations. The most famous
of these models is that of Peter Evans. In Dependent Development (1979), Evans
argued that Brazil developed by having the state engage with hard bargaining with multinational capital. The state limited the ability of foreign companies to repatriate capital. Most multinational investments involved tripartite
deals between foreign capital, local capital, and the state bureaucracy—with
the government maintaining partial control of the investment either through
state ownership of a portion of the company or through the state controlling access to capital via public development banks. The state also acted as
an entrepreneur, creating and maintaining total ownership of a number of
strategic industrial companies, notably those in steel manufacturing and oil
production.
Another state strategy for limiting adverse market forces has been protectionism. Tariffs and import restrictions limit the capacity of the core to sell
monopoly priced manufacture goods, reducing the most important source
of loss of capital. Tariff protection has two further advantages. It provides
protection for infant industries. Moving from an agricultural to an industrial
economy requires that the agricultural nation learn the technology associated with manufacturing. There is typically a learning period associated with
this when the peripheral nation’s goods lack the quality to compete against
foreign producers. Tariffs restrict foreign competition and give the local companies time to gain the skills necessary to produce a quality product. This theory originated in the work of Alexander Hamilton (1789) and Friedrich List
(1983). Ha-Joon Chang (2008) has shown that most prosperous economies
including Britain and the United States made extensive use of tariffs and
import restrictions in the early phases of their industrialization. It has been
suggested that import substitution regimes led to indebtedness caused by
the intrinsic unintended consequences of price distortions and government
expenditure to support inefficient local enterprise. Fishlow (1990) debunks
this proposition thoroughly showing that the debt problems of early import
substitution states came from exogenous expenses in nondevelopment programs such as the military and the welfare state.
However, the most intensive intervention of the state into the market is the
East-Asian developmentalist state. The East-Asian economies have grown
faster than any other economies in the history of capitalism. Their success
is largely attributed to state programs of direct administrative channeling of

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

investment funds into strategic sectors of the economy chosen for their potential to produce long-term growth (Amsden, 1985; Wade, 1990, Woo-Cumings,
1999). In some cases, this is achieved by state ownership of strategic industries, such as the Taiwanese chemical industry. More commonly, it is achieved
by state ministries or development banks offering highly subsidized credit
and profit guarantees to firms who invest in industries selected by the government’s own strategic planners. In other cases, the state subsidizes strategic
inputs such as electricity, steel, or fertilizer to firms following official economic development policy.
These policies are often accompanied by state policies of accelerated technology transfer. These can include investment in basic or university education, subsidizing local students studying overseas, funding for basic and
applied research, and requirements that foreign corporations share proprietary technology as a precondition for producing in the country (Amsden,
2001).
The dramatic successes of these interventions have motivated sociologists
to treat the East-Asian state as the beau ideal of successful developmental policy, with less developmentalist alternatives being treated as at best, partially
adequate and at worst, pathological (Chibber, 2006; Lange & Rueschemeyer,
2005).
CUTTING-EDGE RESEARCH
What is cutting-edge research is different in economics than it is in sociology. I consider the sociological case first. Note also that “new inconvenient”
research has often been published earlier than 2010. Findings in cognate literatures often do not find their way into the local debates where they would
make a difference. In addition, inconvenient findings are often “unrecognized” or “buried” by readers who wish that these unpleasant truths had
not surfaced.
The biggest unpleasant surprise that macrosociological development
theorists will have comes from Jeffrey Williamson’s (2006) Globalization
and the Poor Periphery Before 1950. Jeffrey Williamson has two unpleasant
messages for old school world systems analysts. He did a statistical analysis
of economic growth during 1870–1950 using a newly available dataset from
Angus Maddison on world GDP by nation state from 0 AD to the present
era. This new dataset is attracting a lot of attention, being worked on by
many scholars—including the present author. Williamson is an economic
historian of some renown and has spent a substantial proportion of his
career creating a dataset of the history of terms of trade and tariffs for a
representative subset of Maddison’s nations (tariffs for nearly all nations,

The State and Development

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terms of trade for a large group with equal shares of wealthy and poorer
nations).
Maddison found that adverse terms of trade increased rather than decreased
industrialization. The old theory suggested that trade hurt the periphery
because adverse terms of trade drained resources to the core. In fact,
growth is significantly correlated with having low-priced local agricultural
commodities and relatively expensive imported manufactures.
The news about tariffs was equally discouraging. Within individual
regions, high tariffs were often—although not always—correlated with
economic growth. However, some regions existed where the opposite
occurred. Worse was that Latin America has historically had the highest
tariffs of any region in the world and yet has generally experienced mediocre
growth rates. Protecting nations against adverse terms of trade—or against
the adverse effects of trade openness—does not seem to be important in
stimulating growth.
The finding of weak effects of tariffs is not a fluke. Stalling and Peres (2000),
in an analysis of the effects of increased trade openness on economic growth
in Latin America, found that openness had mixed benefits. South American firms that were already strong become stronger with more international
opportunities and firms that were weak declined.
The Williamson findings suggest that what is harmful about international
trade is not resource draining to the core, but the weakening of demand
for local manufactures. When export agriculturalists had favorable terms of
trade (high agricultural prices and cheap foreign imports), they used their
commodity profits to buy foreign assets and consumption goods. The multiplier effects of successful export agriculture in the periphery went to manufacturing firms in the core. When Amin’s adverse terms of trade existed,
agricultural prices were low and foreign imports were more expensive. The
local agrarian elite could not afford foreign luxury goods or foreign investments. Thus, they were forced to consume and invest locally. This built up
the demand for local manufactures and supported home-grown industrialization. Note the tariff data does not rule out this interpretation. For wealthy
elites, the tariffs on imported luxuries were a relatively small component of
costs. Resource booms and high-commodity prices created agricultural fortunes for which tariff walls were probably a trivial consideration. It was the
lack of agricultural money and not tariff walls that got the agrarian elite to
buy local.
Sociology’s heavy focus on the developmentalist state has been challenged
recently in work by Cohn (2012) on Brazil. As a strategy, the developmentalist state is effective but fragile: it requires an extreme set of preconditions to
work, such as a technocratic bureaucracy and a fiscally solvent state with only
limited penetration from private capitalist interests; in the absence of these

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

conditions, “pseudo-developmentalist” states become corrupt and clientelistic (Chibber, 2006). Fiscally sound, independent, fully technocratic states are
the exception rather than the rule in the global south. What is the rest of the
world supposed to do?
Cohn studied employment in three labor-intense, medium-wage industries
in Brazil: hotels, restaurants, and barber/beauty. The primary finding was
that state infrastructure and vocational education programs created significant employment gains in these sectors. Airport construction had particularly dramatic effects—and these spilled over into other sectors of the economy as well.
The findings of high infrastructure and education effects strangely echo
a “classic cutting edge” work written in 1973, James O’Connor’s Fiscal
Crisis of the State. That work had been central for introducing the concept
of monopoly and peripheral capital in advanced capitalism to American
Neo-Marxism; however, its importance as a theory of development had
been minimized, particularly for peripheral nations. O’Connor argues
that capitalist states promote economic growth by providing public goods
that would not otherwise be provided by the capitalist class themselves.
These public goods involve projects of enormous scale, projects that are
unprofitable over the short term, or projects that provide benefits for other
sectors. He explicitly listed education, transportation infrastructure, basic
scientific research, defense and public welfare (as a legitimation device) as
state contributions to capitalism. The Cohn Brazil findings show that these
state programs do provide meaningful employment—and can be provided
with a fraction of the financial cost and state autonomy of a full-fledged
developmentalist state.
In economics, the cutting edge came from the poor performance of neoliberal policies in producing growth. Shock therapy in Russia did not eliminate
clientelism. After the East-Asian financial crisis, the countries that recovered
the fastest were those such as Malaysia that did not shrink the state or practice fiscal austerities (Stiglitz, 2002). Latin American employment stagnated
(Fernandez-Arias & Montiel, 1997; Stallings & Peres, 2000). All the while,
developmentalist East Asia continued to show robust growth.
This led to a rethinking and the rise of three more state-friendly approaches
to the development issue. The first is that of Joseph Stiglitz (2006). Stiglitz
argues for a multi-faceted role of the state. Like O’Connor, he is a strong advocate of spending on infrastructure, education, and basic scientific research.
He is also an advocate of strong regulation to reduce financial fraud and speculation. He further argues that state policies of redistribution of income from
the rich to the poor are necessary to put on a floor on consumption levels
and thus support national levels of aggregate demand. This position is now
sufficiently mainstream as to be advocated by the World Bank (2002).

The State and Development

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The second innovation is Dani Rodrik’s (2007) rapprochement between
developmental statism. Rodrik made several innovative arguments. The
first is that economists err by diagnosing a potential economic pathology in
theory and assuming all economies are at risk because of this one problem.
As the title One Economics, Many Recipes implies, there are many conceivable
roads to development—and what one society has too much of, another society can have too little of. A contrast between Brazil and El Salvador showed
that proconsumption policies were needed in El Salvador but prosavings
policies were needed in Brazil. This concern with multiple pathologies led
Rodrik to argue that developmental states need to be diagnosticians figuring
out exactly what was wrong with their economy and custom tailoring a
unique institutional solution to local obstacles to growth. In doing so, he
identified a complex list of problems that can be solved by government
including problems in the transfer of technology, problems in obtaining
capital and “administrative failures” in which private sector investments
can only occur if the business community is assured that certain other
changes will be made simultaneously to valorize their investments. Another
key innovation was the argument that state developmentalist programs
should be short term rather than permanent fixtures. Profit guarantees work
better if they are for a fixed duration with a known expiration year. Making
policy temporary eliminates long-term clientelistic dependency on state
handouts—and insures a fresh reconsideration of all programs in the light
of changing market conditions.
The third change was a broad-based affirmation of the importance of
institutional quality. This line of argument has its basis in Douglas North
(1990) who argued that secure property rights, rule of law, freedom from
arbitrary seizure, and fair universalistic public administration were critical
to economic growth. This had an innovative test in Acemoglu, Johnson
and Robinson (2001) which used settler mortality in European colonies
as a measure of settler residence and by extension, the setting up of fair
European style universalistic institutions or predatory institutions designed
to exploit local natives. The places with low mortality and presumably good
institutions had higher rates of growth. The proinstitution literature has
recently become enormous. A review of the role of good governance can be
found in Baland, Moene and Robinson (2010) and the role of property rights
can be found in Besley and Ghatak (2010).
The new institutionalism is basically correct—particularly, when it emphasizes, as Acemoglu does, the importance of free rather than slave labor
markets. However, growth has occurred in settings alongside modestly
predatory state institutions and weak rule of law. Frank Dobbin has documented the surprisingly predatory relationship that existed in Victorian
Britain between the government and railway companies where courts

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

constantly slammed railroads with heavy financial penalties for a wide
variety of unpredictable reasons. Colombia has had fairly high economic
growth by Latin American standards despite a long history of violence and
insecure property rights in its Southern half. Walder (1995) has argued that
high rates of Chinese growth have coexisted with poor formal guarantees
of property rights. De facto congruence of the interest of political elites
with the economic growth of firms has provided for secure investment and
middle-term planning—but with few of the Western legal defenses of the
rights of companies or investors.
KEY QUESTIONS FOR FUTURE RESEARCH
Sociological research on the state and development has been excessively concerned with transformational development and needs to give more emphasis
to palliative development. The focus on unequal terms of exchange has led
sociologists to put a great deal of weight on peripheral nations obtaining
access to the key technologies that would allow them to break the monopoly
of core nations on strategic goods or to obtain strategic monopolies of their
own. This has led to a concern with the strong states that could produce
accelerated technological change. The transformational argument is a good
argument. However, the processes of how the state creates favorable technological change are now well understood.
However, there is more to development than just getting strategic monopolies.
There is an overemphasis on creating strategic base sectors, and an underemphasis on increasing the size of the multiplier effect. The multiplier effect
is the additional growth that occurs in the presence of a core industry from
sales to local upstream suppliers and from sales of consumer goods and services to wage earners in the core industry (or in the local suppliers). Societies differ in the size of their multiplier effects. Latifundist societies have
small multipliers because their wealthy elite buys imported luxuries while
the starving poor can buy little at all; egalitarian societies have lower classes
that buy goods and services and an elite whose restrained means induces
them to buy locally.
Palliative development is any state strategy that increases employment in
the short term. A great deal of palliative development involves increasing
the multiplier effect. Palliative development can consist of increasing
popular incomes to stimulate demand. It can consist of providing support
to local firms that provide goods and services to the national population. It
can stimulate demand by creating goods and services that are sufficiently
attractive to create more local consumption than would have occurred

The State and Development

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otherwise. Construction of infrastructure, basic education, vocational education, entrepreneurial training for small business, microcredit, subsidized
commercial space for small producers in downtown areas, organizing
purchasing coops for small producers, providing technical assistance to
small firms on engineering problems can all make a difference. These need
more attention—particularly in sociology.
There are many other state and development issues to explore that go
beyond the literature. One of the major functions of the state is to wage war.
The relationship between war and growth is poorly understood. There is
significant ambiguity about the relationship between education and growth.
The state manages the debts of the nation. Do differences in compliance with
creditor demands make a difference?
And just as cutting-edge research often took the form of older research that
had been forgotten or minimized, new research may need retest and reestablish arguments that were made and justified years ago but then lost to recent
debates. In current political discourse, the question of the state and development is now the question of whether growth could be increased by shrinking
the state and cutting taxes. Although there is a sizable literature showing negligible growth effects from the reduction of taxes (Cohn, 2012), current fresh
evidence on this point will need to be brought into the public arena.
Methodologically, what should be the new directions of research? One new
direction might be the use of residuals-based methods to test for the effect
of state policies net of market forces. One of the confounding factors in any
discussion of the state and development is that it is necessary to identify
how much economic growth came from government program X, and how
much came from market-based growth that would have occurred anyway.
The Krugman critique of the East Asian Development literature is that the
developmentalist states would have grown quickly anyway because of the
very favorable endowments of capital and education (Krugman, 1994). While
Krugman is wrong about East Asia, his more general point that one needs to
control for nonstate determinants of employment and growth before assessing the effect of state developmentalism is quite sound.
The best way to do this is to use a residuals-based method. One constructs
and estimates a full-fledged model of growth or employment, narrowly using
nongovernmental, purely market-based variables. One then actually runs the
model and calculates the expected values for the dependent variable. Afterward, one subtracts the observed values to obtain residual employment or
residual growth. Cases with high scores are locations with superior policies
(or nonmarket factors) and those with low scores are locations with inferior
policies (or nonmarket factors). One can then do fieldwork at these sites to
explain the difference between high- and low-performing regions. Alternatively, one can add quantitative data on government programs and test for

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

their effect knowing that the observed correlations are independent of market
forces.
A few caveats are in order. This system works best on within-nation data
rather than on cross-nation data. Multicountry datasets are affected by international differences in data collection conventions, which will show up in the
residual effects. It is better to use data collected by one nation or agency that
has internal consistency.
The control model also has to be concerned about spatial autocorrelation
between cases. Such autocorrelation is not necessarily caused by Euclidean
space and simple diffusion. A high-quality competitor in one region may
steal market share from other firms in other regions. Cohn (2012) avoided
this issue by picking industries with no significant cross-region trade, such
as barber/beauty parlors. In an industry with national markets, competitive
effects would need to be modeled explicitly.
Fieldwork can solve many of these problems. A simple model with no
correction for spatial autocorrelation or competition can still be used to
generate a “working” set of residuals that identify high- and low-performing
cases. A fieldworker or ethnographer can then visit the concerned areas
and assess on the ground whether differences in state policy, differences in
competitive excellence, or some new-to-be-found regional factor explains
what is occurring.
The best development work in sociology or economics will generally combine the strengths of econometric analysis with deep immersion into actual
research settings, so that the numbers can be cross-checked with a detailed
understanding of the full production context. Residuals methodologies
provide an excellent way to structure such inquiries—and to guarantee that
claims of the effectiveness of government programs are not giving false
credit to places with favorable market-based endowments.

REFERENCES
Acemoglu, D., Johnson, S., & Robinson, J. (2001). Colonial origins of comparative development: An empirical investigation. American Economic Review, 91,
1361–1401.
Amin, S. (1976). Unequal development: Essay on the social formations of peripheral capitalism. New York, NY: Monthly Review Press.
Amsden, A. (1985). State and Taiwan’s economic development. In P. Evans et al.
(Eds.), Bringing the state back in (pp. 78–106). New York, NY: Cambridge University
Press.
Amsden, A. (2001). Best of the rest: Challenges to the west from late developing countries.
New York, NY: Oxford University Press.

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Baland, J. M., Moene, K., & Robinson, J. (2010). Governance and development. In
D. Rodrik & M. Rosenzweig (Eds.), Handbook of development economics (Vol. 5, pp.
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Ballard, C. (1985). Total welfare cost of the United States Tax System: General equilibrium approach. National Tax Journal, 38, 125–140.
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Besley, T., & Ghatak, M. (2010). Property rights and economic development. In
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Block, F. (1987). Revising state theory. Philadelphia, PA: Temple.
Chang, H. (2008). Myth of free trade and the secret history of capitalism. New York, NY:
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Chibber, V. (2006). Locked in place: State building and late industrialization in India.
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Cohn, S. (2012). Employment and development under globalization: State and economy in
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De Soto, H. (1989). Other path: Invisible revolution in the Third World. New York, NY:
Harper and Row.
Evans, P. (1979). Dependent development. Princeton, NJ: Princeton University Press.
Fernandez-Arias, E., & Montiel, P. (1997). Reform and growth in Latin America. All
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Krueger, A. (1974). Political economy of rent seeking society. American Economic
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North, D. (1990). Institutions, institutional change and economic performance. New York,
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O’Connor, J. (1973). Fiscal crisis of the state. New York, NY: Saint Martins.
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Parsons, T. (1971). System of modern societies. Prentice-Hall: Englewood Cliffs, NJ.
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Stallings, B., & Peres, W. (2000). Growth, employment and equity: Impact of the economic
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Stiglitz, J. (2002). Globalization and its discontents. New York, NY: W.W. Norton.
Stiglitz, J. (2006). Making globalization work. New York, NY: W.W. Norton.
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Williamson, J. (2006). Globalization and the poor periphery before 1950. Cambridge, MA:
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SAMUEL COHN SHORT BIOGRAPHY
Samuel Cohn is a professor of sociology at Texas A and M University. He is
the founder and first chair of the American Sociological Association Section
on Development. He is the author of Employment and Development Under Globalization: State and Economy in Brazil (2012), three other books, and numerous
articles. He has written about the determinants of gendered access to employment in Victorian Britain, strike strategy in Third Republic France, and racial
inequality in labor markets in the United States. This essay involves the determinants of national differences in economic growth in 1870–1950, the period
of the crystallization of the contemporary division of the world into core and
periphery. He is a former Fulbright Scholar in Brazil and the winner of the
1988 American Sociological Association’s Jessie Barnard Award for best book
in gender for Process of Occupational Sex-typing: Determinants of Clerical Feminization in Britain.

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The State and Development
SAMUEL COHN

Abstract
The state and development is a critical issue in speaking to contemporary debates
about whether prosperity is best served by small or large government. The definition of foundational versus cutting-edge research differs depending on whether the
discipline is economics or sociology. There was an early agreement that government
should be big for “big pushes” or “modernization.” Economics turned antistatist as
a reaction to Soviet planned economies and to corruption in general. This led to a
neoliberal attempt to create growth by shrinking state programs—an initiative that
failed very badly. New work in economics emphasizes flexible approaches as to what
states should do, promotes states building education, infrastructure and encouraging
technology transfer, and puts great weight on institutional quality. Sociology emphasized the state as a protector of poor nations from the predations of international trade
and multinational corporations. Emphasis was placed on hard bargaining by states
in the Global South and in developmentalist states such as those in East Asia, which
administratively allocate public investment monies to overcome inefficiencies. New
work suggests that more modest programs emphasizing simple public goods can
be effective. Emerging work also questions traditional specifications of the adverse
effects of international trade leading to a different set of suggested remedies. Future
directions need to focus on palliative development—strategies of state development
that build the multiplier effect rather than base industries. Methodologically, within
nation studies that residualize employment from market factors offer ways to identify new government programs that are effective.

One of the most fundamental issues in macrosocial science is the role of the
state in producing development. The question is not whether the state should
be big or small. Military imperatives are sufficient to guarantee that the state
will be big—for reasons of geopolitics in the core and for reasons of regime
maintenance in the periphery. The question is given a big state, what can or
should such a state do to guarantee development? One reason to ask such
a question is political. Candidates for election promise the voters that they
can generate economic growth and prosperity. Once they attain office, they
are expected to use the state apparatus to deliver on those claims. More so,
net of promises, if the elected politicians wish to do anything once in office,
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

revenues are required in order to implement any program of governance. The
state must promote economic growth in order to maintain its own finances
(Block, 1987).
The question of the state and development is also humanitarian. Most of the
nations who have industrialized effectively and raised their Human Development Indicators to an adequate level have done so on the basis of some
form of effective government policy. Explaining how this is done is important
in providing guidance to poorer nations who wish to do the same.
The debate about the state and development is also important from an intellectual standpoint. The fundamental debate between economics and sociology as disciplines has been about the comparative role of free markets
versus institutions in shaping social outcomes. The optimization algorithms
of economics are based on an assumption that the rational decisions of individuals making personal economic decisions aggregate upward to a market result that represents Pareto-optimality—namely, no one would be better
off if any decision were made other than that the market generated (Pareto,
1971). Yet, it is well known that states take actions that have political consequences. These actions are determined by administrative and political rather
than market processes. If states outperform free markets, this raises questions
about whether free markets are optimizing mechanisms at all; if states always
underperform a free market, this gives greater credence to the foundational
principles of neoclassical economics.
In this discussion, “the state” will refer to the administrative policies that
produce economic growth, either intentionally or unintentionally. For reasons of space, we will not discuss questions of macroeconomic management
such as monetary policy. The discussion here gives greater emphasis to
government “growth-related” programs such as state-led development,
providing physical and human capital infrastructure.
“Development” is used in the traditional sense of GDP/per capita. Development is a contested concept—and questions emerge between very real
contradictions between GDP/capita, the socially constituted “development
project” as capitalist ideology, ecological integrity, and the protection of
exploitable groups such as indigenous people or the poor (McMichael,
1996). These questions are vital but require too extensive a treatment to be
considered fairly here.
FOUNDATIONAL RESEARCH
The allocation of work in this area between foundational and cutting edge is
complicated by the fact that economics and sociology adopted different lines
of thinking at different times. What was foundational in one discipline was

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3

rejected by the other, and what was cutting edge in one discipline was old
and familiar in the other.
Midcentury, there was somewhat less of a divide between development economics and development sociology on this point. Development
economists favored “a big push” in which the state would coordinate
simultaneous investments in infrastructure and capital goods industries as a
way of providing “everything an economy could need” all at once (Higgins,
1959; Rosenstein-Rodan, 1943). The argument was that poor nations are so
poor that no rational investor would invest in the large projects needed
to jumpstart industrialization. Only the state could generate confidence
in private capital markets by showing “so much positive change” was
occurring that previously nonviable investments were now feasible.
In sociology, modernization gave the state a parallel role. Here the emphasis
was less on investment in infrastructure and basic goods and more on breaking the cultural limits imposed by traditionalism and particularistic “tribal” loyalties. States produced “modern attitudes” consistent with Weberian
rationality and technological growth by promoting Western education, secular values, bureaucratic rules of universalistic administration, rule of law, and
the use of money and credit; they also created political entities and markets
large enough to be able to sustain the scale necessary to support economic
growth (Hoselitz, 1952; Parsons, 1971). The state provided a big push, which
was cultural and institutional.
However, over time, the economics profession moved toward a position of
strong preference for market forces and general hostility to the intervention
of government into the economy. Some of this derived from respect for the
power of the price mechanism in conveying information and concern about
any bureaucratic setting of prices that would interfere with prices being a
simple indicator of bona fide costs (Friedman, 1962). Some came from the
empirical observation of the consistently poor performance of state-run command economies in the Soviet bloc. Another source of skepticism was the pervasive corruption and clientelism that could be found in some Third World
governments.
Various purely theoretical models were developed in the Hayekian
tradition showing that government expenditure and taxation produced
deadweight losses for society (Ballard, 1985). However, the literature that
had the most impact on development economics was the political economy
or “rent-seeking” approach. Government bureaucrats were assumed to be
corrupt profit maximizers whose public office gave them monopoly control
over a product or service. They administer their office to maximize their
income from “rent payments”—a polite way of saying bribes. Note that
rent seeking involved a full range of rewards to private officials for the
distortion of public policy. Above and beyond simple bribes, there was the

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

intentional fomenting of clientelism through creating opportunities to “solve
problems” for constituents, and the self-interested expansion of the budgets
and powers of government offices for simple political reasons. The theories
would then specify the loss in national output or welfare that came about
because of this corruption (Krueger, 1974; Posner, 1975). One implication of
this framework was that the government bureaucrats would put as many
administrative obstacles as possible in front of citizens and entrepreneurs to
maximize potential opportunities to collect side payments—and these
regulatory obstacles would also impede firm formation and investment
simply from the red tape required for law-abiding citizens to get things
done. Empirical support for this world view came from the work of Hernando De Soto whose 1989 Other Path: Invisible Revolution in the Third World
painted a grim picture of bureaucratic obstacles to doing business in Latin
America. Subsequent research showed that de Soto’s nightmarish account of
stifling government red tape was highly exaggerated and that the time and
cost for small Latin American businesses of compliance with government
regulations was relatively modest (Tokman, 1982).
The antistatist bent of development economics became manifest in the
Washington Consensus and the rise of neoliberalism (Williamson, 1990).
The fall of the Berlin Wall emboldened state-haters. Just as Communism
falling represented the realization of a miraculous dream, the removal of
all government interference with the economy in the Third World now
seemed like another potentially reachable miraculous dream. Development
economists recommended a program of reduction of state budgets, privatization of public firms, deep cuts in the social safety net, and elimination of
tariff barriers, limits on foreign ownership of local assets, and repatriation of
capital (Sachs, 1994).
Sociology has generally had a prostatist rather than antistatist orientation
caused by an intrinsic concern for the adverse effects of market forces on
growth in peripheral nations. This position has been put forward by dependency theorists (Frank, 1967) and world systems theorists (Wallerstein,
1974); the adverse effects of international trade received particularly cogent
formalization in the theory of unequal terms of exchange, popularized
by Samir Amin (1976). Amin argued that trade between rich nations and
poor nations involves exchange of high-tech manufactures that involve
proprietary knowledge, for commodities that are technologically simple
and can be produced by a wide variety of nations. This allows the rich
nations to charge monopoly rents for their products, while the prices of
agricultural and extractive commodities are kept low by global competition
for sales and market pressure The core manufacturer is a price maker and
the peripheral farmer is a price taker; the result is a substantial transfer of
resources from the periphery to the core. The outflow of resources from the

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5

periphery to the core has been exacerbated by foreign direct investment;
multinational corporations in the Third World tend to repatriate profits from
their third-world subsidiaries to their home operations in the developed
world (Barnet & Muller, 1974).
Thus most postdependency theory models of the state and development
in the Global South argue that the state promotes economic growth by constraining market forces for the benefit of peripheral nations. The most famous
of these models is that of Peter Evans. In Dependent Development (1979), Evans
argued that Brazil developed by having the state engage with hard bargaining with multinational capital. The state limited the ability of foreign companies to repatriate capital. Most multinational investments involved tripartite
deals between foreign capital, local capital, and the state bureaucracy—with
the government maintaining partial control of the investment either through
state ownership of a portion of the company or through the state controlling access to capital via public development banks. The state also acted as
an entrepreneur, creating and maintaining total ownership of a number of
strategic industrial companies, notably those in steel manufacturing and oil
production.
Another state strategy for limiting adverse market forces has been protectionism. Tariffs and import restrictions limit the capacity of the core to sell
monopoly priced manufacture goods, reducing the most important source
of loss of capital. Tariff protection has two further advantages. It provides
protection for infant industries. Moving from an agricultural to an industrial
economy requires that the agricultural nation learn the technology associated with manufacturing. There is typically a learning period associated with
this when the peripheral nation’s goods lack the quality to compete against
foreign producers. Tariffs restrict foreign competition and give the local companies time to gain the skills necessary to produce a quality product. This theory originated in the work of Alexander Hamilton (1789) and Friedrich List
(1983). Ha-Joon Chang (2008) has shown that most prosperous economies
including Britain and the United States made extensive use of tariffs and
import restrictions in the early phases of their industrialization. It has been
suggested that import substitution regimes led to indebtedness caused by
the intrinsic unintended consequences of price distortions and government
expenditure to support inefficient local enterprise. Fishlow (1990) debunks
this proposition thoroughly showing that the debt problems of early import
substitution states came from exogenous expenses in nondevelopment programs such as the military and the welfare state.
However, the most intensive intervention of the state into the market is the
East-Asian developmentalist state. The East-Asian economies have grown
faster than any other economies in the history of capitalism. Their success
is largely attributed to state programs of direct administrative channeling of

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

investment funds into strategic sectors of the economy chosen for their potential to produce long-term growth (Amsden, 1985; Wade, 1990, Woo-Cumings,
1999). In some cases, this is achieved by state ownership of strategic industries, such as the Taiwanese chemical industry. More commonly, it is achieved
by state ministries or development banks offering highly subsidized credit
and profit guarantees to firms who invest in industries selected by the government’s own strategic planners. In other cases, the state subsidizes strategic
inputs such as electricity, steel, or fertilizer to firms following official economic development policy.
These policies are often accompanied by state policies of accelerated technology transfer. These can include investment in basic or university education, subsidizing local students studying overseas, funding for basic and
applied research, and requirements that foreign corporations share proprietary technology as a precondition for producing in the country (Amsden,
2001).
The dramatic successes of these interventions have motivated sociologists
to treat the East-Asian state as the beau ideal of successful developmental policy, with less developmentalist alternatives being treated as at best, partially
adequate and at worst, pathological (Chibber, 2006; Lange & Rueschemeyer,
2005).
CUTTING-EDGE RESEARCH
What is cutting-edge research is different in economics than it is in sociology. I consider the sociological case first. Note also that “new inconvenient”
research has often been published earlier than 2010. Findings in cognate literatures often do not find their way into the local debates where they would
make a difference. In addition, inconvenient findings are often “unrecognized” or “buried” by readers who wish that these unpleasant truths had
not surfaced.
The biggest unpleasant surprise that macrosociological development
theorists will have comes from Jeffrey Williamson’s (2006) Globalization
and the Poor Periphery Before 1950. Jeffrey Williamson has two unpleasant
messages for old school world systems analysts. He did a statistical analysis
of economic growth during 1870–1950 using a newly available dataset from
Angus Maddison on world GDP by nation state from 0 AD to the present
era. This new dataset is attracting a lot of attention, being worked on by
many scholars—including the present author. Williamson is an economic
historian of some renown and has spent a substantial proportion of his
career creating a dataset of the history of terms of trade and tariffs for a
representative subset of Maddison’s nations (tariffs for nearly all nations,

The State and Development

7

terms of trade for a large group with equal shares of wealthy and poorer
nations).
Maddison found that adverse terms of trade increased rather than decreased
industrialization. The old theory suggested that trade hurt the periphery
because adverse terms of trade drained resources to the core. In fact,
growth is significantly correlated with having low-priced local agricultural
commodities and relatively expensive imported manufactures.
The news about tariffs was equally discouraging. Within individual
regions, high tariffs were often—although not always—correlated with
economic growth. However, some regions existed where the opposite
occurred. Worse was that Latin America has historically had the highest
tariffs of any region in the world and yet has generally experienced mediocre
growth rates. Protecting nations against adverse terms of trade—or against
the adverse effects of trade openness—does not seem to be important in
stimulating growth.
The finding of weak effects of tariffs is not a fluke. Stalling and Peres (2000),
in an analysis of the effects of increased trade openness on economic growth
in Latin America, found that openness had mixed benefits. South American firms that were already strong become stronger with more international
opportunities and firms that were weak declined.
The Williamson findings suggest that what is harmful about international
trade is not resource draining to the core, but the weakening of demand
for local manufactures. When export agriculturalists had favorable terms of
trade (high agricultural prices and cheap foreign imports), they used their
commodity profits to buy foreign assets and consumption goods. The multiplier effects of successful export agriculture in the periphery went to manufacturing firms in the core. When Amin’s adverse terms of trade existed,
agricultural prices were low and foreign imports were more expensive. The
local agrarian elite could not afford foreign luxury goods or foreign investments. Thus, they were forced to consume and invest locally. This built up
the demand for local manufactures and supported home-grown industrialization. Note the tariff data does not rule out this interpretation. For wealthy
elites, the tariffs on imported luxuries were a relatively small component of
costs. Resource booms and high-commodity prices created agricultural fortunes for which tariff walls were probably a trivial consideration. It was the
lack of agricultural money and not tariff walls that got the agrarian elite to
buy local.
Sociology’s heavy focus on the developmentalist state has been challenged
recently in work by Cohn (2012) on Brazil. As a strategy, the developmentalist state is effective but fragile: it requires an extreme set of preconditions to
work, such as a technocratic bureaucracy and a fiscally solvent state with only
limited penetration from private capitalist interests; in the absence of these

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

conditions, “pseudo-developmentalist” states become corrupt and clientelistic (Chibber, 2006). Fiscally sound, independent, fully technocratic states are
the exception rather than the rule in the global south. What is the rest of the
world supposed to do?
Cohn studied employment in three labor-intense, medium-wage industries
in Brazil: hotels, restaurants, and barber/beauty. The primary finding was
that state infrastructure and vocational education programs created significant employment gains in these sectors. Airport construction had particularly dramatic effects—and these spilled over into other sectors of the economy as well.
The findings of high infrastructure and education effects strangely echo
a “classic cutting edge” work written in 1973, James O’Connor’s Fiscal
Crisis of the State. That work had been central for introducing the concept
of monopoly and peripheral capital in advanced capitalism to American
Neo-Marxism; however, its importance as a theory of development had
been minimized, particularly for peripheral nations. O’Connor argues
that capitalist states promote economic growth by providing public goods
that would not otherwise be provided by the capitalist class themselves.
These public goods involve projects of enormous scale, projects that are
unprofitable over the short term, or projects that provide benefits for other
sectors. He explicitly listed education, transportation infrastructure, basic
scientific research, defense and public welfare (as a legitimation device) as
state contributions to capitalism. The Cohn Brazil findings show that these
state programs do provide meaningful employment—and can be provided
with a fraction of the financial cost and state autonomy of a full-fledged
developmentalist state.
In economics, the cutting edge came from the poor performance of neoliberal policies in producing growth. Shock therapy in Russia did not eliminate
clientelism. After the East-Asian financial crisis, the countries that recovered
the fastest were those such as Malaysia that did not shrink the state or practice fiscal austerities (Stiglitz, 2002). Latin American employment stagnated
(Fernandez-Arias & Montiel, 1997; Stallings & Peres, 2000). All the while,
developmentalist East Asia continued to show robust growth.
This led to a rethinking and the rise of three more state-friendly approaches
to the development issue. The first is that of Joseph Stiglitz (2006). Stiglitz
argues for a multi-faceted role of the state. Like O’Connor, he is a strong advocate of spending on infrastructure, education, and basic scientific research.
He is also an advocate of strong regulation to reduce financial fraud and speculation. He further argues that state policies of redistribution of income from
the rich to the poor are necessary to put on a floor on consumption levels
and thus support national levels of aggregate demand. This position is now
sufficiently mainstream as to be advocated by the World Bank (2002).

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9

The second innovation is Dani Rodrik’s (2007) rapprochement between
developmental statism. Rodrik made several innovative arguments. The
first is that economists err by diagnosing a potential economic pathology in
theory and assuming all economies are at risk because of this one problem.
As the title One Economics, Many Recipes implies, there are many conceivable
roads to development—and what one society has too much of, another society can have too little of. A contrast between Brazil and El Salvador showed
that proconsumption policies were needed in El Salvador but prosavings
policies were needed in Brazil. This concern with multiple pathologies led
Rodrik to argue that developmental states need to be diagnosticians figuring
out exactly what was wrong with their economy and custom tailoring a
unique institutional solution to local obstacles to growth. In doing so, he
identified a complex list of problems that can be solved by government
including problems in the transfer of technology, problems in obtaining
capital and “administrative failures” in which private sector investments
can only occur if the business community is assured that certain other
changes will be made simultaneously to valorize their investments. Another
key innovation was the argument that state developmentalist programs
should be short term rather than permanent fixtures. Profit guarantees work
better if they are for a fixed duration with a known expiration year. Making
policy temporary eliminates long-term clientelistic dependency on state
handouts—and insures a fresh reconsideration of all programs in the light
of changing market conditions.
The third change was a broad-based affirmation of the importance of
institutional quality. This line of argument has its basis in Douglas North
(1990) who argued that secure property rights, rule of law, freedom from
arbitrary seizure, and fair universalistic public administration were critical
to economic growth. This had an innovative test in Acemoglu, Johnson
and Robinson (2001) which used settler mortality in European colonies
as a measure of settler residence and by extension, the setting up of fair
European style universalistic institutions or predatory institutions designed
to exploit local natives. The places with low mortality and presumably good
institutions had higher rates of growth. The proinstitution literature has
recently become enormous. A review of the role of good governance can be
found in Baland, Moene and Robinson (2010) and the role of property rights
can be found in Besley and Ghatak (2010).
The new institutionalism is basically correct—particularly, when it emphasizes, as Acemoglu does, the importance of free rather than slave labor
markets. However, growth has occurred in settings alongside modestly
predatory state institutions and weak rule of law. Frank Dobbin has documented the surprisingly predatory relationship that existed in Victorian
Britain between the government and railway companies where courts

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

constantly slammed railroads with heavy financial penalties for a wide
variety of unpredictable reasons. Colombia has had fairly high economic
growth by Latin American standards despite a long history of violence and
insecure property rights in its Southern half. Walder (1995) has argued that
high rates of Chinese growth have coexisted with poor formal guarantees
of property rights. De facto congruence of the interest of political elites
with the economic growth of firms has provided for secure investment and
middle-term planning—but with few of the Western legal defenses of the
rights of companies or investors.
KEY QUESTIONS FOR FUTURE RESEARCH
Sociological research on the state and development has been excessively concerned with transformational development and needs to give more emphasis
to palliative development. The focus on unequal terms of exchange has led
sociologists to put a great deal of weight on peripheral nations obtaining
access to the key technologies that would allow them to break the monopoly
of core nations on strategic goods or to obtain strategic monopolies of their
own. This has led to a concern with the strong states that could produce
accelerated technological change. The transformational argument is a good
argument. However, the processes of how the state creates favorable technological change are now well understood.
However, there is more to development than just getting strategic monopolies.
There is an overemphasis on creating strategic base sectors, and an underemphasis on increasing the size of the multiplier effect. The multiplier effect
is the additional growth that occurs in the presence of a core industry from
sales to local upstream suppliers and from sales of consumer goods and services to wage earners in the core industry (or in the local suppliers). Societies differ in the size of their multiplier effects. Latifundist societies have
small multipliers because their wealthy elite buys imported luxuries while
the starving poor can buy little at all; egalitarian societies have lower classes
that buy goods and services and an elite whose restrained means induces
them to buy locally.
Palliative development is any state strategy that increases employment in
the short term. A great deal of palliative development involves increasing
the multiplier effect. Palliative development can consist of increasing
popular incomes to stimulate demand. It can consist of providing support
to local firms that provide goods and services to the national population. It
can stimulate demand by creating goods and services that are sufficiently
attractive to create more local consumption than would have occurred

The State and Development

11

otherwise. Construction of infrastructure, basic education, vocational education, entrepreneurial training for small business, microcredit, subsidized
commercial space for small producers in downtown areas, organizing
purchasing coops for small producers, providing technical assistance to
small firms on engineering problems can all make a difference. These need
more attention—particularly in sociology.
There are many other state and development issues to explore that go
beyond the literature. One of the major functions of the state is to wage war.
The relationship between war and growth is poorly understood. There is
significant ambiguity about the relationship between education and growth.
The state manages the debts of the nation. Do differences in compliance with
creditor demands make a difference?
And just as cutting-edge research often took the form of older research that
had been forgotten or minimized, new research may need retest and reestablish arguments that were made and justified years ago but then lost to recent
debates. In current political discourse, the question of the state and development is now the question of whether growth could be increased by shrinking
the state and cutting taxes. Although there is a sizable literature showing negligible growth effects from the reduction of taxes (Cohn, 2012), current fresh
evidence on this point will need to be brought into the public arena.
Methodologically, what should be the new directions of research? One new
direction might be the use of residuals-based methods to test for the effect
of state policies net of market forces. One of the confounding factors in any
discussion of the state and development is that it is necessary to identify
how much economic growth came from government program X, and how
much came from market-based growth that would have occurred anyway.
The Krugman critique of the East Asian Development literature is that the
developmentalist states would have grown quickly anyway because of the
very favorable endowments of capital and education (Krugman, 1994). While
Krugman is wrong about East Asia, his more general point that one needs to
control for nonstate determinants of employment and growth before assessing the effect of state developmentalism is quite sound.
The best way to do this is to use a residuals-based method. One constructs
and estimates a full-fledged model of growth or employment, narrowly using
nongovernmental, purely market-based variables. One then actually runs the
model and calculates the expected values for the dependent variable. Afterward, one subtracts the observed values to obtain residual employment or
residual growth. Cases with high scores are locations with superior policies
(or nonmarket factors) and those with low scores are locations with inferior
policies (or nonmarket factors). One can then do fieldwork at these sites to
explain the difference between high- and low-performing regions. Alternatively, one can add quantitative data on government programs and test for

12

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

their effect knowing that the observed correlations are independent of market
forces.
A few caveats are in order. This system works best on within-nation data
rather than on cross-nation data. Multicountry datasets are affected by international differences in data collection conventions, which will show up in the
residual effects. It is better to use data collected by one nation or agency that
has internal consistency.
The control model also has to be concerned about spatial autocorrelation
between cases. Such autocorrelation is not necessarily caused by Euclidean
space and simple diffusion. A high-quality competitor in one region may
steal market share from other firms in other regions. Cohn (2012) avoided
this issue by picking industries with no significant cross-region trade, such
as barber/beauty parlors. In an industry with national markets, competitive
effects would need to be modeled explicitly.
Fieldwork can solve many of these problems. A simple model with no
correction for spatial autocorrelation or competition can still be used to
generate a “working” set of residuals that identify high- and low-performing
cases. A fieldworker or ethnographer can then visit the concerned areas
and assess on the ground whether differences in state policy, differences in
competitive excellence, or some new-to-be-found regional factor explains
what is occurring.
The best development work in sociology or economics will generally combine the strengths of econometric analysis with deep immersion into actual
research settings, so that the numbers can be cross-checked with a detailed
understanding of the full production context. Residuals methodologies
provide an excellent way to structure such inquiries—and to guarantee that
claims of the effectiveness of government programs are not giving false
credit to places with favorable market-based endowments.

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SAMUEL COHN SHORT BIOGRAPHY
Samuel Cohn is a professor of sociology at Texas A and M University. He is
the founder and first chair of the American Sociological Association Section
on Development. He is the author of Employment and Development Under Globalization: State and Economy in Brazil (2012), three other books, and numerous
articles. He has written about the determinants of gendered access to employment in Victorian Britain, strike strategy in Third Republic France, and racial
inequality in labor markets in the United States. This essay involves the determinants of national differences in economic growth in 1870–1950, the period
of the crystallization of the contemporary division of the world into core and
periphery. He is a former Fulbright Scholar in Brazil and the winner of the
1988 American Sociological Association’s Jessie Barnard Award for best book
in gender for Process of Occupational Sex-typing: Determinants of Clerical Feminization in Britain.

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