To What Extent Did Developed Countries Need State Intervention to Industrialise - Literature review Example

TO WHAT EXTENT DID DEVELOPED COUNTRIES NEED INTERVENTION TO INDUSTRIALISE? Introduction The essay would develop an understanding of each of thespecific terms and introduce the history pertaining to their macro economics. The nations being called developed nations, as an idea of a modern day state with a vibrant democratic frame work at place, with certain economic scale. The amount of state intervention in industrialization can be recognized from different perception that have a social political background very unique to itself. In this context, the nations that have been commonly referred to as developed states like the United Kingdom, United States of America, France, Japan, and Germany are the most prominent one. The background for the macro-economic foundations is laid on certain historical perspeception (Tsuneki, 2012) Developed States: Macro-economy perspectives and State’s Role Developed nations in economic criteria are they who possess the top rankings in global context. The ‘gross domestic production’ (GDP), Gross national product (GNP), ‘per capita income’, level of industrialization are few indicators that may be considered. In this context, Levy-Orlik, (2009) observed post industrial economics where the service sector provides more of ‘wealth’ over manufacturing sector. The difference between them and others is that they are in advanced stage of industrialization over the rest in a process of developing on industrializations. The state or the institutional set up for each of the economy have a social political perspective that has achieved them the needed growth. The concept of state however needs to have a functional democracy, where human rights are promoted, sovereignty exists. Each of the nations like the US, UK, Germany, France, Japan has their own historical perspective in terms of level, attitude, policy oriented state interventions. The intervention from the state machinery can be suggested as the philosophy where it is believed economy and state are separate entity. In this way, the capital market creation and sustenance can be developed where the government interventions on market forces determines the way business behaves. However, Matthews et al. (2008) notes, the state-owned enterprises are developed for major social growth with development agenda. An example is the rail-roads of the US that was developed primarily to serve the social cause of industrial development. Government own corporations or a commercial agency to undertake activities and suitably assist their own government and the national interests. The railroads or road infrastructure or even state run power sector have the objective of social service with a macroeconomic objective. These entities form a natural monopoly in few cases like mail the weapon manufacturing sector to suite its international defence strategies. Healthcares, education, infrastructure for agriculture have social motives over profits and the role of the state is in service provision (Hogendorn, 2001) . The United States for an example has always followed a process of liberal democratic constitutional in its government formulation. Being the largest economy with abundant natural resources and high productivity, it generated itself as a state that has been in domination the global economic stage for quite some time now. The entire nation was covered by rail road’s and telegraph cable much before any other nation, in that big a scale. This promoted its rapid economic growth and by the end of 19th Century it reached its peak with its free market economy reforms. The policies and frame works from the legislation in the US are developed to suite its industrial aspirations (Thelawdictionary.org, 2015). The industrial policies of the US were formed with the objective of competitiveness improvements, capabilities of domestic firms and promoting structural reforms. ‘Lassiez Faire’1 or to leave alone was the approach in the US have a history promoting economy with competent policies to see that the economic growth is not effected by any means with regulation of state. The regulations are statutory in nature promoting inter and intra-economic interactions that gives fairness and promotes competition in an economy. Scott and Basu (1985) suggested that the policy favours individual self interest and competitions but oppose taxations and regulations of commercial activities. The competition in among the producers made the nation think in different directions to frame in the business economics to accommodate oligopoly and competitiveness among similar businesses. Thus improved production methods, development of new products, process innovations, distribution, communication, skill development etc got a boost in US boosting its investment needs. Both individual investors and banks provided the needed finance. Industrialization triggered the change in living and socio-economic standards (Krueger, 1995). The political reforms were brought in with a strong favour for business environment development. The agenda was somewhat common for developed nations those show a steep rise in growth and development for last three decades (1980-2010). Further, social reforms had a major role to play in such nations where the economy is said to be developed (Wang, 2011). The World Bank notes ‘by recognizing the strength of civil society organizations in mobilizing public and private sectors to reach out to and support the disadvantaged youth around income generating opportunities2’ as the state and its people’s joint economic development program. Shafaeddin (2015) suggests that apart from natural resources, climate, water, power etc with developing human capital for an economy is key to its economic developments. Japan for example, is the highest creditor nation till date, with a considerable amount of trade surplus as well as considerable international investment surplus (Ohno, 2014). Post 1960s, the Japanese reduced its defence spending and concentrated in economic growth. It is important to note that in developed nations the budget spending on defence is huge. The ministry of economy and trade from the state institutions made the average growth 10% annually in ‘60s, 5% in ‘70s and 4% in ‘80s. The per capita income in 1990s surpassed many major western economies; however the GDP3 remained 1.5% lower to other global economies (Worldbank.org, 2014). The support was thus from the policy side that boosted domestic productivity with the objective of exports. The surplus generated for exports was major in Japan (Ishii and Scissors, 2014). However, the natural resources to support the industrial growth are very low with its public debt to support aging population has slowed the economy now. Scott (2008) observed four distinct developments in the Japanese national development like economic modernization (economic development with industrialization), political modernization (democratization), social modernization. Again, Immordino (2008) suggested that the Japanese society is an example of development derived out of people’s labour, land, capital and innovations. However, the stagnations due to its aging population, lack of natural resources are the factors limiting growth. Therefore the role of the state now is its political intervention to develop policies that gives innovation the route for industrial revitalization. The reasons that are stated suggests that the huge amount of foreign investments due to its huge surplus, investing trillions abroad while borrowing at home to support social cause of health care. Since the government do not earn revenue to support the social schemes thus the government interventions are needed to frame policy that brings in innovation for growth while blunting public economy with public borrowing (Hallett and Heady, 1979). Further in Japanese context, the social perspective of traditional labour practices emphasize on job security and lowered the productivity in the changing business economics (Econlib.org, 2013). Therefore the role of government in such a condition stays to formulate policies that involve the foreign bodies to participate in private sector and thus promote such environment in business macro economy. DeSilva (2010) noted that Germany is a federation of polycentric cultures with no single economic centre. Therefore each of the regions developed its economy with a strong state support at each stage. The policy of the state determines the investment opportunities to attract international investments, where underdeveloped markets have better potential to grow. An example can be the business of German Alstrom or Bayer investing in Indian and Chinese economy as these economies is to grow more than the German markets as the competitions are high (Gmu.edu, 2015). The competitive investment currency demands in developed economy may not give the investors that potential of growth in a market with ‘perfect competition’. The Japanese economy therefore in such a condition has lost the ability to attract investors for itself in the domestic market. The history suggests that the Japanese developed the economy with its exports but today the developed economies are in a stage of stagnancy today. The developing economies are attracting investors where the resources and potential are in equal balance. The role of state machinery is therefore in creating the required social, political, legal and environmental abilities to attract investors (Conteh-Morgan, 2012). The growth started with states intervention where the economy was given the right impetus to grow with domestic policies like tax rules, banking supports, laws to ease import export, business infrastructures like roads, rails, energy develop manpower skill for support functions (Boyle and Meyer, 1990). Conclusions The historical perspective of various economies gives the idea of the kind of intervention that the state provides. The US support was based out of its policies of constructive growth of economy where the policies and social support systems were formed for industrial growth. The formulations of policies were always around economic growth where the changes for betterment were supported all through. The objective was social development for the citizens while giving space for competition development. The Japanese however had the intervention from government which took account of all the resources that the post World War 2 left behind and allocate and establish systems to support production, innovation for surplus achievement. The objective was to develop an economy that lived in its exports of surplus. With industrialization at peak, the German economy had the state support for innovation that was fully integrated into its regional social development. Policy effects for developed nations with a futuristic foresight gave the economies its ‘Developed’ status with needed financial, commercial, legal, social and infrastructural supports. Reference List Boyle, R. and Meyer, P. 1990. Local economic development in the USA. Local Economy, 4(4), pp.272-277. Conteh-Morgan, E. 2012. The Role of the State in Development: Re-examining Neo-Liberal Recommendations. [online] E-International Relations. Available at: [Accessed 27 Feb. 2015]. DeSilva, S., 2010. 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Japanese Economy, 24(4), pp.13-21. Krueger, A., 1995. Trade policies and developing nations. Washington, D.C.: Brookings Institution. Read More