Following the oil shock of 1973 and the consecutive economic problems, Keynesian economics fell out of favor at the end of the 1970s. Then, as an advocate of fundamental form of free market, neoliberalism has prevailed in the world for the past three decades. First it took hold on the UK and the US, Western Europe and finally the rest of the world. For decades, through gigantic international financial institutions such as the IMF and the World Bank, the neoliberal thinking advocated free market, free trade and small governments.
Neoliberalism is a strong opponent of government intervention in the market. It sees it not only as unnecessary but by any means distractive. Its model put the state on the enterprise, the citizen on the consumer and governance on business management.
In the past decades critics of neoliberalism has been on the rise and its denunciation is ubiquitous. Some criticize that rather than generating wealth and income, the main achievement of neoliberalism is the redistribution of wealth so that only few accumulate it. Despite creating wealth for few, the neoliberalism has brought about variety of social and economic crisis including wealth inequality and the 2008 financial crisis, to mention but a few.
Since the 1980s, some many times, attempts have been made to implement the neoliberal ideology in developing countries to solve their economic problems. Yet, the various neoliberal solutions that opted to liberalize African economies have failed again and again.
The concept of developmental state or developmentalism emerged in reaction to classical economic liberalism which it viewed as a rationale for Western imperialism, according to Richard Child (2000). The developmentalist creed explicitly rejects the self-regulating market ideal, and the individualism underlying it, calling instead for cooperative relations among government, business and labor under state leadership to speed the adoption of new technology, reduce production costs and expand global market share (Hatch and Yamamura 1996:220). The experiences and success of East Asian developmental states such as China, South Korea, Taiwan and the likes has set a model for others to follow.
The late Prime Minister Meles Zenawi in this regard presented his strong arguments against the neoliberal economic school of thought during most of his time as a leader of Ethiopia. During most of his leadership, Meles advocated fundamental paradigm shift in Africa. He argued that African states should give much focus to development than liberalizing their economies. For him, developmental state is the way forward for the continent to bring its peoples out of the misery of poverty.
Under his leadership Ethiopia adopted a developmental state model with some modification. "In principle, there is no state which does not pursue development. So we have to understand the rationale behind when we label whether a state is developmental or not," says Tsegaye Mamo, Communications Vice President at Meles Academy.
Developmental state has been reinterpreted as democratic and developmental state in Ethiopian case. "When we take the case and experiences of other developmental states such as China, South Korea and Taiwan, they did not at the initial stage talk about democracy. But in our context we are talking about 'a democratic and developmental state'. Because, we believe that we cannot achieve development without democracy," he tells The Herald.
In a developmental state, the state has to be involved in handling market failure. Because there is always market failure which could not be handled by demand and supply alone. "For instance, in terms of infrastructure in our case, we are not going to construct a road in a remote areas, for instance in Surma with the conviction that there would be demand. We cannot make study on whether there would be demand for car transportation without building the road first," Tesgaye explains. "In addition, if feasibility is the only factor that is taken into consideration, some communities in remote areas might be excluded from infrastructure development such as telecommunication and electricity just because they are small in number, or because they do not produce exportable commodities. This is because, the market always prioritizes feasibility. The market gap (failure) is so huge in our country. So if we leave the market to the private sector only, the consequence would be that developed areas would develop more and the previously under-developed because of injustice would remain under-developed for at least the foreseeable future."
In the past, government interventions in the market has also been observed in neoliberal economies also, especially when their banks and real estate developers failed. "They did not just watch when such events occur. If we measure it in terms of finance, our intervention is much lesser. These states injected billions of USD. Our goal as developmental state is to meet the socio-economic demand of the society. Thus the state has to have much more than a role of a watchman. It has to stimulate development. It has to expand infrastructure," the Communications Vice President argues.
But the developmental state paradigm is not pursued as a permanent or everlasting strategy. The conviction is that as the growth progresses, it would pave the way for the emergence of a strong private sector. There would be improved interaction between producers and consumers. The ideology of a democratic developmental state would progress into a more developed form of capitalism. By the roles that have been played by the state would be no more necessary. There will be a chance that the role of the state would diminish and the role of the private sector in the economy would thrive.
In Ethiopia's context, the market could not self regulate. To mention but a case, there are only four or five businessmen who supply salt in the country as wholesalers. Once, they reached an agreement among themselves and raised the price of salt from 1.30 to 30 birr within a day. So according to the neoliberal thinking, the option was just to sit and watch what is going to happen. But the government did not opt to just sit and watch. It intervened and started to sell salt the next morning. So when the market stabilizes, it got out so that the market functions. "When we say we are developmental state, it is not only because we construct roads, schools or health stations. Basically, it is because we carryout development activities in selected areas where the role of the government is prominent," Tsegaye says.
"I think we can go for both development and democracy at the same time. If we ask why the Chinese become developmental without becoming democratic at first, it is because the situation was suitable for them. This means their major concern was to get rid of poverty and hunger. There is not much diversity within. Both Korea and Taiwan also adopted democracy later on. But is it possible in our case? Can we invest all our energy on development alone?" Tsegaye asks. "When the current government came to power, there was discontent among the peoples of Ethiopia because of the previous regimes. One of the major discontent had be the issue of nationality. There has been an age long question of democracy by the nations, nationalities and peoples of the country. So you cannot pursue development without answering this basic question. Developmental state is not a matter of choice but it is mandatory. Democracy, peace and development are matters of development. As we cannot achieve all this separately, we adopted a democratic developmental state as an alternative. While other countries have already adopted the developmental state paradigm, Prime Minister Meles has a special place in adopting it in the context of democracy."