Review of DFID’s TSP Mushtaq H. Khan SOAS

Transformative Institutional Capacities Restructuring Property Rights to accelerate the emergence of a dynamic capitalist sector (prioritizing the allocation of public land, emphasis on particular types of infrastructure, carrying out pro-growth land reform, and selecting beneficiaries of these policies) Assisting technology acquisition (prioritized infrastructure support, technology licensing, training and technology absorption subsidies) Extra-market Disciplining of Capitalists (re-allocating subsidies, closing down training schemes, setting up new ones, restructuring infrastructure provision)

Rents and rent seeking are NOT the problem: Failing to manage rents is the problem Developing country states have to create and manage many types of transfers and “unearned” incomes, including from natural resources These create incentives for corruption and rent seeking, but as long as the resources contribute to development, neither the rent nor the rent seeking is a problem Development can be promoted if this rent seeking is regulated, and if state capacity for regulation and disciplining can be strengthened (examples of oil rents in most OPEC countries, industrial subsidies in South Korea)

Cross section evidence supports good governance only because high growth countries drop out as outliers

The TSP View of Governance Requirements

Case Study Evidence shows that High Growth countries were strong in transformative state capacities Environmental Conditions: Successful countries did have basic security (5), but not necessarily equal access to justice for all. They did have national security (6) They had high levels of corruption (7) but not of the predatory variety They often (but not always) scored poorly on most of the redistributive capacities (1, 3, 4) They always scored highly on transformative capacities (2+ many others)

Sequencing of reform is the key Drivers of Change studies are right in identifying importance of local conditions But they ignore transformative capacities, and the importance of rent management A better approach may be a combination of a) focused capacity building in state capacities for promoting productive capacity combined with b) dissemination of knowledge about political and institutional conditions that allowed growth in high growth countries