The presence of an effective ‘‘developmental state’’ has been cited as explanation for the economic success of Japan while the absence of this has been used to explain the relative economic failure of Mexico. Lustig, for example, argues that ‘‘of the principal stylized features of the East Asian Developmental model,’’ to wit, ‘‘prudent macroeconomic policy, high domestic savings rate, a systematic investment in human capital, relatively equitable initial conditions, no real restrictions on foreign exchange active but performance-linked state intervention, only macroeconomic policy of a prudent sort features in the Mexican case.’’7 On the face of it this is somewhat surprising. In many respects circumstances were more propitious for the emergence of a developmental state in Mexico than in Japan. The Mexican executive enjoys a remarkably high degree of centralized authority. The president enjoys powers of which the Japanese chief executive might only dream. The Mexican state itself has enjoyed a very high degree of insulation from societal demands and has been willing and able to distance itself at times from business interests as well as from labor.8 Contrast this if you will with Japan where the extent of executive power is much less, so much so that there are those who speak of ‘‘the weak Japanese state’’9and where the bureaucracy is extremely porous to business interests, and it might seem that some of the critical preconditions for the political management of economic change as anticipated by the developmental state thesis are more evidently in place in Mexico than in Japan. At a minimum, we can conclude at the very outset of the comparison that authoritarianism
and insulation are not enough, that even if these are necessary conditions, as some have argued, they are not sufficient.10 Nor can we explain the difference by reference to any failure of will. There is no ideological obstacle to a developmental role for the state and nor is it the case that the state has not ‘‘willed a developmental role’’ (in short there is a clear Mexican answer to Haggard’s question regarding the elite motivation to intervene in pursuit of developmental ends).11 Far from it, the revolutionary transformation of Mexican society is enshrined as a goal in the constitution. The Mexican state has been actively involved in the promotion of economic development for much of the postwar period.
Conceivably, the failure is attributable to inappropriate policy choices. Much has been made of a stylized contrast between import-substituting industrialization (ISI) – the low road of Latin American development – and export-oriented industrialization (EOI) – the virtuous East Asian path. Doubtless there is much in this but whether it is the whole story is another question. Since the patchy economic performance of Mexico has occurred (and is all the more intriguing accordingly) under very different state- led developmental strategies – interventionist and ‘‘hands off,’’ import- substituting and export-led – economic strategy in the period 1970–82 has been described as ‘‘remarkably inward looking, with a very proactive and interventionist state which pursued highly expansionary fiscal policies and relied heavily on foreign borrowing to bridge the fiscal gap’’ which gave way from 1982 and certainly from 1985 to a reverse course, a rolling back of the state, state-initiated reductions of trade and investment barriers, and a conservative fiscal policy. Hence:
[F]rom President de la Madrid onward through early 1998 every major economic policy decision, from joining GAT in 1986, to the Brady Bond negotiations of 1988, to membership in the OECD and NAFTA in the early 1990s, through the IMF/US Treasury mega-loan of 1995, has been premised on the idea of export-led manufacturing growth as the engine of socio-economic change.12
If the problem is not the policy choice then it is perhaps the absence of that critical requisite: the proper institutional mix to sustain policy, to ensure its implementation and the coherence and integration of one policy with another, and, not least, to facilitate a strategic adaptation to the consequences of the implementation of policy. Given the significance attached by students from this school of thought to the development of stable fiscal and banking institutions, to the establishment of a coherent and talented technocracy,13 and so forth, the establishment of such in combination with policy failure in Mexico might occasion surprise. On paper, at least, not too much can be made of contrasts between Japan and Mexico in respect of the institutional support for developmental policy. Arguably Mexico as much as Japan has the essential institutional architecture in place.
The literature on the developmental state is also sensitive to the extent and to the quality of state intervention. Intervention, beyond the minimum deemed necessary to establish the basic physical and social infrastructural prerequisites of the market economy, is said to be market-distorting and constitutive of rents. These can be good – that is, functional for economic development – if they meet certain conditions which permit their characterization as market-conforming and/or market-correcting.14 The potential utility of rents is also argued in the language of industrial policy which speaks of ‘‘selective subsidy,’’ ‘‘picking winners,’’ ‘‘industrial target- ing,’’ ‘‘infant industry protection,’’ and so on. There is doubtless a dash of posthoc rationalization, an element of tautology and economism in all of this (that is, if the industry seems to be successful it is deemed to be so because of the policy which in turn is characterized as market-conforming or market- correcting notwithstanding the theoretical elusiveness of these notions). Putting such quibbles to one side, the fact of the matter is that rents and rent- seeking are recognized to be an important feature of the Japanese political economy, and are judged to have been functional for economic develop- ment. The Japanese state has had an accordingly good press, more than its share of plaudits, and is widely celebrated as the architect of economic success. Latterly this has changed and the newspapers have resounded with charges of cronyism and corruption. Evidence of collusion, of scandalous allocations of public contracts abound and implicate the highest officials in the land. The bureaucracy, once seen as the guarantor of good governance, has lost its halo. The popular view increasingly is that the administration is inefficient, immobilist, and too often corrupt. In short Japan has come to face a charge sheet more commonly associated with Mexico. The Mexican state has more rarely enjoyed the luxury of a good press. It has been charged as primarily responsible for the miserable economic performance of the long years since 1970. It is widely accused of complicity in the creation by its officials and its allocation to itself and to its supporters of incomes derived from legally and politically sanctioned monopolies, particularly in conjunction with the protection of domestic industries. Neoliberal reform was widely trumpeted precisely for the reason that it promised to sweep away the inefficiencies and distortions borne of extensive, even pervasive, rent-seeking practices.
The fundamental ambivalence of rents has been widely noted, and Khan and Jomo express it well. They speak of the paradox that, ‘‘in developing countries the rent seeking can be more extensive, can include illegal forms and is more often damaging for growth. At the same time many types of rents and rent seeking played a key role in processes of development.’’15 The ambivalence has led to a distinction between ‘‘good’’ and ‘‘bad’’ rents. The distinction is not always clear and consistent. It can be between rents that ‘‘add value’’ and rents that do not, between rents functional for development and rents dysfunctional for development, between rents that conform to or correct the market and those that do not, or between rents that function
analogously to the market and those that do not. The distinction is even more elusive in practice; it depends upon a retrospective judgment which emphasizes consequences and outcomes regardless of whether these were intended, incidental, or accidental (and, so once again, we have the whiff of tautology and of circular reasoning in the nose). Moreover, since over time the supposed consequences of rent-seeking can look very different (Japan in 1990 as opposed to Japan in 1980), so can the judgment of the rent as good or bad. Thus in the case of both Japan and Mexico it is acknowledged that there is and has been much rent-seeking, but in Japan rents overall were thought to be ‘‘good’’ rents until the 1980s when the bubble economy burst, and the suspicion arose that perhaps the rents were not good rents after all and, more certainly, that they had outlived their usefulness. In Mexico rents and rent-seeking perhaps were a mix until 1970 but thereafter retrospectively, a mix more inclined to the bad than to the good. In both cases it is now widely held that the time is ripe for neoliberal reform to sweep away rents, rent-seeking, and their attendant distortions.
In short this is tricky terrain. However, traverse it we will in the following pages, and our decision to do so merits an explanation. The principal justification is that rents and rent-seeking are implicated one way and another in each of the developmental explanations listed above. ‘‘Intervention,’’ any kind of intervention beyond the indispensable (Douglas Northian) minimum sufficient to establish the rule of law, property rights and the integrity of contracts, is, in one view, immediately constitutive of rents and potentially compromisable by these. In the case of the industrial policy of the develop- mental state, this is in large part a matter of the strategic and tactical deployment of rents, its success dependent upon a kind of rent-seeking science and a high degree of anticipatory wisdom regarding the rent-seeking proclivities of private sector partners, clients and other interests. By the same token both the ‘‘insulation’’ and the ‘‘embeddedness’’ of the developmental state can be construed in terms of access to rents and controls over rent- seeking. Developmental strategies, both ISI and EOI industrialization, are inordinately vulnerable to rent-seeking and critically dependent upon the state’s ability to get the rent-seeking science right. The bureaucracy is the chief player in all of these accounts and typically is the agency favored with both the design and the implementation of developmental strategies and, simultaneously, both gatekeeper commanding access to rents and, no less, home to a multitude of potentially rent-seeking officials. In short there is hardly an explanation of developmental success and failure that does not subsume some understanding of rents and rent-seeking. At the same time there are few explanations that treat rent-seeking as anything other than an aberration. And there is in that combination of facts a great incongruity and a major obstacle to understanding.
We seek to go beyond this. Our point of departure is acceptance of the normality of rents and rent-seeking. Our desire is to delay – or better still to postpone – the rush to judgment that attends most efforts to analyze rents
and rent-seeking. Our concern is an empirical investigation and character- ization of rents and rent-seeking practice in Japan and Mexico that treats these as a normal feature of daily politico-economic life, and attempts to make sense of them from that perspective, rather than as an aberration from or distortion of some normatively derived normal. We will note how they configure the universe of the firm (and so we will have due regard to the economic outcomes of rents and rent-seeking in Japan and Mexico) whilst studiously avoiding all temptation to construe them (by analogy, by functional equivalence, by correspondence and so on), in terms of the thought-to-be prior and higher logic of the market.