State, education and develo�ment

Amartya Sen (1988) has noted that economic theory has always been about develop-ment. Nevertheless, the study of the economic development processes of developing countries gained recognition only after the World War-II because of the economic theories of John Maynard Keynes and the establishment of the World Bank (then called International Bank for Reconstruction and Development) and the Interna-tional Monetary Fund at the Bretton Woods conference in 1944.²

Keynes, in his General Theory of Employment, Interest and Money (1936), asserted the importance of aggregate demand as the driving factor of the economy, breaking with most classical economists who, since the late eighteenth century, had argued that the economic process was based on continuous improvements in potential out-puts. Keynes theory attributes a central role to the government in devising policies to promote demand and fight high unemployment of the sort seen during the great depression of the 1930s (Manor 1999). These theories also shaped economic polices in developing countries, which were (and in some cases still are) trapped in what Nurske (1953) defined as a ‘vicious cycle of poverty’. In brief, this means that limited saving capacity results in limited capacity to invest, ultimately leading to the adop-tion of labour intensive producadop-tion techniques versus technology improvements and increased productivity. This limits the creation of the necessary surplus to produce savings and therefore investments. To break this vicious cycle, economists argued that there was the need for a ‘big push’ (Rosenstein-Rodan 1961). Poor countries re-quired large amounts of investment in basic industries such as power, transport, and communications. These were to be supported by other productive investments. Since the investments necessary for the ‘big push’ were considered to be beyond the means of the private sector, the state assumed a crucial role (ibid.).

During the 1950s, these theories led to the design of centralised modernisation strategies that aimed at achieving higher rates of economic growth and mirror the provision of public services in the developed world and/or the perceived success-ful rapid industrialisation of the Soviet Union (Turner and Hulme 1997, Burki et al. 1999, Manor 1999, Addison 2005). During the 1950s, development was equated with economic modernisation to be achieved, as described in the take-off model by

2 I need to thank David Ayres for bringing this point to my attention.

Theoretical framework of the study and findings of previous relevant research 27

American economist W. W. Rostow, through five linear stages of economic growth:

traditional society, preconditions for take-off, take-off, drive to maturity, and high mass consumption (Rostow 1960). Public services such as education did not receive specific attention, although it was believed that central planning could provide stan-dard education to all and help consolidate a sense of national unity (Riddel Rubin 1997, Bray 2001).

In the early 1960s, the economic development debate shifted. Hans Singer rea-soned that the main problem in economic development was not the increase in the capital stock but rather the ‘capacity’ to increase capital and produce wealth (1961).

Theodore Schultz (1962) developed this idea further and coined the term human capital to describe the crucial contribution of knowledge and schooling for economic growth. Human capital, in other words, can be defined as “the sum of skills em-bodied within an individual (i.e., education, intelligence, charisma, creativity, ex-perience). What would be left if somebody would be stripped away of all assets: job, money, home, possession” (Wheelan 2002: 99). Schultz argued that in developing countries “it is simply not possible to have the fruits of modern agriculture and the abundance industry without making large investments in human beings” (ibid.: 120).

According to Schultz, governments had an important role to play in developing edu-cation and training institutions.

The following decade is important because of a “critical re-examination of the process of social and economic development” (Thorbecke 2000: 28). Qualitative as well as quantitative data from developing countries showed the persistence of high rates of underemployment and a generalised increase in the number of people living below the poverty line. The fact that economic growth did lead to poverty reduction helped to further separate the concept of development from economic growth (Arndt 1987). Of particular importance were the contributions by Dudley Seers and Mahbub ul Haq, who argued that the evidence from two decades of socio-economic data from developing countries showed that economic growth did not translate into poverty reduction. They suggested that poverty needed to be tackled directly, and that the focus should move from the rate of growth to the quality of growth. Meanwhile, the World Bank, under the presidency of Robert McNamara, began to support the idea that poverty should be tackled directly and introduced development plans defined by objectives and indicators aimed at increasing the income of the poorest living in rural areas (Arndt 1987). Singer (1979) posited that development should reach the marginalised and poor by concentrating on rural areas, providing education and health services, strengthening the participation of people in decision making pro-cesses, and supporting administrative decentralisation as opposed to central plan-ning. The state, though, maintained a central responsibility in implementing what the International Labour Organisation defined in 1975 as a Basic Needs Approach.

In the late 1980s, “the intellectual pendulum swung back (albeit with considerable resistance) towards the market mechanism” (Addison 2005: 11). Three basic points

underline this shift. The first was the economic crisis in the developing countries (Thorbecke 2000). Second, with the Thatcher and Reagan administrations in the United Kingdom and United States, there was renewed emphasis on neo-liberal mar-ket mechanisms. This was supported by a critical perception by developing coun-tries that the Basic Needs Approach would actually prevent modernisation and keep them permanently behind the developed nations by focusing, for example, on the untapped potential of the informal sector (Arndt 1987, Adelman 2000). A third point is linked to the polarisation between Western capitalism and Eastern socialism that proceeded the fall of the Berlin Wall (Addison 2005). The term Washington Consen-sus, coined by John Williamson to define a policy agenda of the World Bank and the International Monetary Fund to be desirable in Latin America, became the standard term to describe the policy prescriptions to developing countries during the 1980s and mid 1990s. The main thrust of the so called Structural Adjustment Programme, was to promote free trade, to reorient and reduce public sector expenditures, support privatisation, reduce price distortions by minimising government interventions in the economy, and achieve capital accumulation (Adelman 2000, Williamson 2004).

Human capital accumulation continued to have an important role. Economists’ in-fluenced by the Endogenous Growth School stressed that progress stems from alloca-tion of investments in research and development and the disseminaalloca-tion of know how between industries and sectors (Adelman 2000). Governments maintained, there-fore, a limited but important role and the New Institutional Economics School argued that even in a neoclassical world, the success or failure of development efforts will depend on the nature, existence and proper functioning of a country’s fundamental institutions (Thorbecke 2000).

By the early 1990s, the successful development of some East Asian countries that did not follow the structural adjustment principles and the worsening of human de-velopment indicators in several countries that did undergo structural adjustment, contributed to a return of the focus on poverty reduction (Adelman 2000). At the same time, the emergence of the political discourse associated with ‘third way’ poli-tics started to influence the economic development debate. The ‘third way’ argument is that there is the need for the state to reform and acquire a new role in develop-ment and economic policy (Giddens 1998, 2005). For Thomas (1991), “governdevelop-ments need to do less in those areas where the market works, or can be made to work. At the same time, governments need to do more in areas where markets cannot be re-lied upon” (p. 8). This second area is of particular relevance for Giddens, who notes the importance for the state to become transparent and accountable, guarantee the rule of law, root out corruption, help to develop a civil society, pursue equality while embracing market mechanisms, and stimulates economic investments in education.

In other words, the state should facilitate the creation of the conditions that expand individuals’ freedom and choices (Sen 1999). These policies are even more relevant

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for developing countries, “though more difficult to achieve given limited resources and inadequately developed institutions (Giddens 2005: 15).

Today, development theories describe this new role of the state and the set of in-stitutions that are conducive to accelerated growth and socio-economic development (Thorbecke 2000). The state has therefore acquired the role of facilitator, in building an institutional environment based on the principles of good governance and demo-cratic participation necessary to achieve sustainable development. One of the main strategies, decentralisation reform, is presented in the next section.