The State and Economic Transformation: Toward an Analysis of the Conditions Underlying Effective Intervention

Abstract

Effective state intervention is now assumed to be an integral part of successful capitalist development. The classic interpretations of Polanyi and Gerschenkron have brought the state to the fore in the analysis of European industrialization, puncturing the myth of the original industrial revolution as a purely private process. In the Third World, where the capacity of the private entrepreneurial class to undertake industrialization was always viewed with a more skeptical eye, even conventional economic analysis has acknowledged the importance of the role of the state. In both early and late industrialization, state policy is assumed to affect the forms and the rate of capital accumulation and to play a major role in determining whether the negative distributional effects that normally accompany capitalist industrialization will be mitigated or made worse. There are a number of theoretical arguments as to why state intervention should be necessary for economic transformation in a capitalist context. They are worth reiterating briefly. Insofar as economic transformation involves the institutionalization of market exchange or its extension to land and labor, even the narrowest neoclassical model has space for the state. As Durkheim argued so effectively in his polemics against utilitarianism, the market requires a strong set of normative underpinnings in order to function at all. Without effectively institutionalized guarantees of these normative underpinnings, “transaction costs” will be exorbitant and the market will not allocate resources efficiently. The state role derived from this argument is strictly limited and pertains most critically to the period in which capitalist exchange is struggling for predominance over precapitalist economic forms, but it is a critical role nonetheless.

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