Development under Statism

Cambridge University Press, 2017.

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Development after Statism discusses contemporary industrial development in a new era of drastically constricted state capacity, from the point of view of the manufacturing firm. This book project has grown out of my dissertation research, which included in-depth interviews with over 250 industrialists throughout India and Pakistan. It focuses on the following empirical puzzle: India’s industrial economy has been growing quite impressively. It has deepened its ability to manufacture sophisticated products and integrate into high-value global production networks. And yet, the Indian state has been largely ineffective in its regulation of the economy and its promotion of industry. Agencies of the Indian government have proved unable to provide a predictable macroeconomic environment, to manage capital-labor relations, and to advocate effectively on behalf of Indian industry in world markets. And Pakistan, though less successful, has competed effectively in export markets in the face of chronic state weakness. Given what we know about the necessity of state intervention in the economy for effective industrialization, current successes in manufacturing should be impossible.

To answer this puzzle, I make two closely related claims. First, I outline the ways in which the Indian and Pakistani states developed and implemented a national framework of industrial governance and promotion between the 1940s and 1970s. Such a framework, while exclusionary, did provide a great deal of certainty for industrial firms; manufacturers were able to invest without worrying about variability in the costs and availability of capital, without concerns about the provision of a skilled industrial workforce, and without detrimental relationships with the international economy. This statist framework had collapsed by the 1980s due to external shocks and the political assertion of excluded groups. I argue that since that time, no other national, regional or sectoral framework of industrial governance has been able to take the place of the statist bargain in either country. The result has been systemic uncertainty in the Indian economy, not to mention Pakistan's, and thus a context in which the nature of investments are deeply unpredictable. 

Second, I argue that faced with this environment, Indian and Pakistani firms are compelled to ‘govern themselves.’ To increase the predictability of investment, firms invest in structured networks of long-term relationships with other industrial actors: other firms, workers, financiers, agents of the international economy. The character of these firm-level self-governance differs, however, depending on manufacturers’ backgrounds and experiences, firms are governed either based on formal institutions or personal networks. As a result, firms have been able to regain some certainty for investment and organize production over the long term but at the cost of national coherence around a single set of institutions. This finding has deep implications for the future of the Indian politics. In response to the recent retreat of the state, society is internally divided on whether to respond by expanding the personal sphere to include ever larger areas of public life, or by revitalizing formal institutions as a means of increasing efficiency and transparency. The nature of Indian democracy and the rise of previously disadvantaged and socially embedded groups into political and economic power militate against the latter strategy, thus providing feedback for further contraction of the state’s capacity to effectively regulate the economy. In Pakistan, such dichotomy of response is most clearly reflected in tensions between the bureaucratic authoritarian impulses of institutions like the military opposing the democratic yet fragmenting actions of provincial actors more embedded in traditional society.