The World As I See It

State Building (Fukuyama, 2004) is a small but enlightening book. I read it in 2 days. It pertains to the understanding of difficulties in transferring institutional capacity to the weak or failed states, such as East Timor, Kosovo, Bosnia, and now Afghanistan and Iraq

In line with my previous topic, the new conventional wisdom prioritises administrative institutional effectiveness over the scope of state i.e. whether the state is too big, whether it operates a national steel mill / national health insurance etc. The author contrasted the small US government (that provides mostly pure public goods e.g. national defence, law and order, private property rights, macroeconomic management) with those of extensive governments in Japan and Europe, where all perform equally well.

Just after the Berlin Wall fell and the Soviet Union collapsed, I used to be asked a lot: "What do these ex-communist states have to do in order to become market economies?" And I used to say: "You can describe that in three words: privatize, privatize, privatize." But, I was wrong. That wasn’t enough. It turns out that the rule of law is probably more basic than privatization. – Milton Friedman, Preface to Economic Freedom of the World Report 2002

The first thing in teaching developing countries to govern better is to create a domestic demand for institutions. Thereafter we can talk about its supply. However, only the organisational design and management component of institutional capacity is highly transferable. This is what the public administration schools can provide to serve the world. Institutional design and basis of legitimation of a country, though of high importance, rarely change - only in extreme cases. Lastly it is virtually impossible to meddle with the social and cultural factors of a society. Hence the author emphasised frequently on respecting local norms in the outsiders’ efforts.

And we have the monitoring problems (principal-agent, for those familiar with the technicalities), where we would demand transparency and accountability from government officials. Areas that have low transaction volume with high specificity, such as central banking, do not permit a high degree of variance according to local conditions and are the most susceptible to reform, where (to quote the author) "ten bright technocrats can be air-dropped into a developing country and bring about massive changes for the better in public policy". On the other hand, areas with high transaction volume and low specificity are the hardest to reform. Public education, law and order and healthcare are clear examples. Since the public output is not immediately measurable, project managers will need a high degree of discretion in decision making (less monitored) and good judgement to grasp the subtleties.

In giving aid to poor countries, we should always keep in mind our purpose of building institutional capacities. When administering drugs for AIDS, we bring in local officials, use local hospitals, beef up the logistics and provide training, instead of bypassing local means to provide the service ourselves. We should tolerate the inefficient initial processes as it is akin to the logic of "teach fishing, not give away fish". Creating and strengthening self-sustaining institutions before hyping about exit strategy, just as the coalition forces’ priorities now in Afghanistan and Iraq, and as the legacy of British system in Singapore and Hong Kong.

State building is important in today’s context, as weak states pose security problems not only to themselves but far beyond their shores (Sept 11). Perhaps it is advisable to keep an eye on the countries with declining per capita GDP and growing number of unemployed young men. Nonetheless, it is by no means a full view of development theory. A more comprehensive one that I come across is the [EGOIN + circular cumulative causation + S-curve] theory proposed by Professor Lim Chong Yah. State building constitutes the G (Government) of EGOIN, which is the most crucial component.

Those who are interested to further read can have a look at Chapter III "Building Institutions" of World Economic Outlook Sept 2005.