The author's goal is to operationalize and quantify the concepts used by
previous
studies on the economic crises of the Third World countries where
stabilization or
adjustment policies were applied. He uses macroeconomic variables to
build/elaborate political explanations about the reasons and solutions for
these economic crises. The way that he tries to analyze the deep problems
belonging to a great variety of countries, during a long period of time
(1969-1992), looks like an excessive simplification. He presupposes that the
same formula can be applied to any country in order to achieve development, as
if the political, social and economic processes were linear. Ironically, the
author criticizes the oversimplification in other studies, but he excessively
reduces into figures, the successes and failures of different governments
through the application of his model.
Nevertheless, it is necessary to highlight that this is an empirically complex
work.
His conclusions can be useful guides to the concrete study of countries,
although a certain level of technical financial knowledge is required in order
to appreciate and understand the categories used. This article may be seen as
a complement to the previous ones read in the course, therefore, authors we
have studied are mentioned as resources.
Implicit in the argument put forth by Snider is the idea that politics, and
not economics, are the key determinants in the success or failure of economic
restructuring. Zysman, in his discussion of financial structures, disagrees,
to some extent, with this conclusion. He actually concludes his article
defending the idea that the financial system of a country structures the
politics of industrial change. The politics of industrial change are not the
same as the politics of a state but the
descriptions given by both authors include similar elements such as allocation
of
costs and benefits and national coalitions.
Snider's characteristics of an effective political system that will bring
about
positive economic adjustment cut across Zysman's financial system
differentiations. This can be demonstrated by the fact that although Snider
says
that the specific economic and political agendas of a state are irrelevant, it
appears that certain elements, such as transparency and ability to tax, must
be
present in order to develop the characteristics prescribed. It is here that a
contradiction develops between these two authors. According to Zysman's
"argument", these necessary characteristics are not likely to be present in
the
same country based on their financial system structure. Transparency and
explicit actions are not a large part of the credit-based, price administered
financial system, and, at the same time, the relative political extraction of
resources would not constitute an important element in the capital market-
based
system that naturally opposes taxation if truly competitive. It is apparent
that the categorization utilized by the two authors are not complementary.
Hence, scholarly discretion is necessary to determine which perspective is
most active and valid in each particular country that is being profiled. As
has been stated, Snider arguments may be an oversimplification and may not be
equally applicable to different regime types. This would lend support to
Zysman's classifications.
We have included a summary of themain points of the article in order to help
those students who did not have a chance to read the text. Because the
reading used terms and quantitative methods, we thought this would facilitate
more discussion.
THE MAIN ARGUMENT
The success or failure of governments successfully completing adjustment
strategies depends on its political capacity to:
a) Extract human and material resources in order to achieve the industrial
transformation, economic growth and prosperity of the economy or to promote
specific adjustment policies. This extraction ability serves the adjustment
process only so long as the state is also controlled by economic actors. The
capacity to insulate itself from domestic and international pressures allows
the government to implement and monitor adjustment policies. As the adjustment
of economic rules produces a different distribution of political winners and
losers, the government must be able to recreate the coalitions that will
support its management. Nevertheless, when the level of development becomes
complex, economic actors also gain autonomy from state directives. At this
point, the state can become too powerful. Nicolas van de Walle explained how a
state's extractive can influence political capacity. His basic argument was
that if the state did not have the ability to collect revenues the likely
result would be clientelism. Snider, in his article, also
implied that without state extractive capabilities, clientelism would develop
and
further economic stagnation; impeding the adjustment process. Under this
point, the author also differentiates between tax structures -whether revenue
is derived from indirect or trade taxes or direct taxes. This structure
reflects mobilization -the state ability to penetrate society-; meanwhile, the
total tax collection reflects extraction, or the state's ability to extract
resources.
b) to improve and maintain the credibility or formality of political and
economic
Institutions as well as a reliable policy environment. Consistency and
predictability are the main values that guarantee long inversions and
productivity, and they seem to be defined by the way that property rights are
protected against any kind of violation. The type of political regime
involved is irrelevant, even though the occidental, republicanistic,
constitutional, democratic model appears to be the
only appropriate model. In this point he make two remarkable conclusions.
First, the lack of insitutionalism (credibility and formality) poses a barrier
to "adopting technical innovations in production or to introducing new
products"(Pg. 8), creating a preference for trading over manufacturing
activities. Is this preference not a cultural feature? It appears to be a
cultural bias and not the result of political decisions. Second, and more
technically, he suggests that the adequacy of institutions can be measured by
the use of currency - in comparison to the use of other forms of money that
could be hazardous again due to the institutional deficiencies and inadequate
contract enforcement's.
c) the degree to which a government extracts society's resources explicitly,
"with consent", or covertly, clandestinely. This is reflected in the tax
structure.
"Taxes on trade are the easiest to levy because they require relatively little
government presence to collect. The more the government depends on indirect
taxes and trade taxes the greater the opportunity for clandestine income
transfer and the more politicized are the revenue and expenditure." (Pg. 10)
Then, rent
seeking, corruption, redistribution and income transfer through inflation,
indirect taxes on goods and services etc. appear as samples of the
government's
inability to carry out structural adjustment and vulnerability to the external
shocks. In the indicator, the percentages of indirect taxes and trades taxes
over the total revenue collected is taken into account.
The author realizes that within the orthodox prescription to development,
characterized by export-led growth, the market as the principal instrument of
reform and the minimization of state intervention in the economy, lies a
paradox since the state apparatus is the main instrument employed to change
the existing statism. He concludes that, indeed, economic liberalization
should involve a strong state.
The three elements of political capacity are examined by testing how they
affect
three outcomes:
* economic growth (relationship between relative political extraction and
economic
performance)
* how these three attributes are perceived by international capital markets
(measured by the Institutional Investor country rating)
* and the share of national product devoted to government consumption
-inversely
related to economic growth-.
Utilizing a large number of indicators, the author studies different
countries, getting relations, correlations and averages rates. With these
results, he tests different hypotheses are tested. (pg. 29 to 34),
nevertheless all the results confirm the author's point of view.
Next, the most important results the author obtained controlling different
levels of economic development:
* "growth responds positively to higher levels of institutional credibility
and
more explicit government extractive policies but negatively to higher levels
of
relative political extraction" (Pg. 21)
* "the more social relations approach contractual market conditions and
bureaucratic organization, the more effective will be the intervention of the
sate
in the economy" (Pg. 22)
* "the more explicit are a government's revenue policies, the higher is a
country's economic performance; but the more relative political extraction
converges toward the mean, the higher is a country's economic performance"
(pg.
27).
*"the average level of creditworthiness for the advanced developing countries
is
significantly lower than that for the advanced industrialized nations" (Pg.
30)
*"unrestrained state autonomy or discretionary power has a pernicious effect
on
economic performance. Under such conditions the state can become a predator
upon society".
It is only here that the author mentions that democracy would enhance economic
efficiency better than a dictatorship would.