Bureaucracy and Growth. : Revisiting Evans Effect of Weberian Bureaucracy on Economic Growth

Transcription

1 Bureaucracy and Growth : Revisiting Evans Effect of Weberian Bureaucracy on Economic Growth I. Introduction II. Literature Review III. Research Design IV. Results V. Conclusion VI. Bibliography Yeon Ho Lee (Yonsei University) Yeoun Ki (Yonsei University) abstract One of key features that have been drawing countries economic growth is said to lie in its meritocratic bureaucracy. And this is said to be the main driving force of rapid economic growth between 1970 s to 1990 s for East Asian countries that are called the developmental state. With State holding strong autonomy, bureaucratic structure supported and practically carried out goals set by State as an institution and administrative procedure of drawing economic growth. Evans and Rauch(1999) tested the effect of meritocratic bureaucracy on economic growth empirically and suggested the significant relations between the two. However, considering today s economic status, it is questionable that whether the role of bureaucracy is significantly related to the economic growth. In this article, by testing with new and current data for quality of bureaucracy and economic growth, it tries to examine whether the strong and significant relations between bureaucracy and growth are still meaningful. By adopting former works of Evans and Rauch(1999), this article empirically tested the effect of meritocratic bureaucracy in today s economic growth. 1

2 I. Introduction Is meritocratic bureaucracy important in pushing its economic growth rate? This debate dates back to Weber s theory on rationality of bureaucracy. And more recently this meritocratic feature was suggested as a significant contributing factor in leading economic development of developing countries. The cases of East Asian countries that are classified as developmental state are strong examples that support such argument, especially during 1970 to Evans and Rauch(1999) tested such relevance empirically and proved its correlations. However, there are needs to look closely into the logic of meritocratic bureaucracy and its impact on economic growth. Especially since 1997 Asian Financial crises, so-called developmental states undertook several reforms on its state strategy on economic growth towards regulatory model, and the developmental model seems only to work in East Asian areas, whereas Latin American developmental state models have shown some disappointing outcomes. And also, the economic shape is rapidly changing after 2008 economic crisis. With this relevance, whether meritocratic bureaucracy still holds significance needs to be tested with new circumstances taken into account. On given circumstances, this article tries to empirically test whether meritocratic bureaucracy is still important in today s economic development across the countries. And to do so, this tries to adopt former model of Evans and Rauch(1999) and the variable suggsted by it to argue whether their logic is still significant in evaluating today s economic conditions. Using statistical data with linear regression, this article tries to verify the logics supported by Evans and Rauch(1999), and moreover former works supported by developmental state theorists. To test empirically, the main variables that measures meritocratic feature of bureaucracy are government s former recruitment system which entails strict entrance examinations and government s reward on bureaucratic personnel within the system. The growth of economic change is measured between 2008 to 2013 to see the most current situations and situations after 2008 economic crisis. II. Literature review With the advent of so-called four East Asian Tiger s rapid economic growth through state s holding strong autonomy in leading its economic growth. And the key element of these state s strong autonomy lies in its bureaucratic structure. Chalmer Johnson(1982) suggested the concept of the capitalist developmental state to refer to the developmental state based on institutional arrangements common to high growth in East Asian economies. 2

3 Of the characteristics of such developmental states, such as holding economic growth as the first priority and absence of any commitment to equality, the most significant feature of states holding strong autonomy lies in its bureaucratic structure. Under strong state autonomy, the market is guided with instruments formulated by a small-scale, elite bureaucracy, recruited from the best managerial talent availiable in the system. Within the bureaucracy, a pilot agency play a key role in policy formulation and implementation. Close institutionalized links are established between the lite bureaucracy and private business for consultation and cooperation. The organizational and institutional links between the bureaucratic elites and major private sector firms are crucial in generating a consensus on goals, as well as in exchanging information, both of which constitute essential components of the process of policy formulation and implementation. It is a political system where bureaucracy is given sufficient scope to take initiatives and operate effectively. The politicians reign while the bureaucracy rule (Onis,1991). What upholds this developmental state model are one hand suggested by the term state autonomy and on the other bureaucracy as an institutional setting. Behind this developmental state model lies two types of human capital; elite politicians and elite bureaucrats. The former organizes political institutions of developmental state strategy and the latter organizes administrative and technical institutions of the developmental state. The bureaucratic elites substantially and through policies propel the purposes set by political elites which sets economic growth as a priority and insulates its priorities from socio-political effects that may harm political agendas. From this perspective, it could be said that the role of bureaucracy in accomplishing the purpose of developmental states accounts for significant importance (Lee, 2016). To analyze this bureaucratic structure in relationship with economic growth, Evans and Rauch (1999) empirically tested the relationship between bureaucratic structure and economic growth. In doing so, they established a term Weberain scale to feature bureaucratic proficiency. This Weberian Scale reflects the ideas of bureaucracy suggested by Weber that bureaucracy is a particular kind of organizational structure set in contrasts to earlier patrimonial and prebendal forms of government administration. More precisely, the public administrative organizations that are characterized by meritocratic recruitment and predictable, long-term career rewards will be more effective at facilitating capitalist growth than other forms of state organizations(evans & Rauch, 1999). Evans and Rauch established a new dataset concerning bureaucratic characteristics with regards to whether each country s bureaucracy follows the features suggested by Weberian terms. They used data collected between through expert survey questions to illustrate 35 countries existing their bureaucratic characteristics. The dependent variable here is the total growth of real GDP per capita during the period. Results showed that there is significant positive relations between Weberainness scale of bureaucracy and GDP 3

4 growth. Figure 1 The effect of Weberianness Scale on Economic Growth(Evans&Rauch, 1999) Evans and Rauch(1999) controlled for past average schooling years to control for the possibility Weberianness could be a proxy for overall level of development stocks of human capital and also controlled for initial GDP level. The relation between the Weberianness and economic growth remained strong and significant. And the scattergram suggested another significant feature that there is strong degree to which the regional distribution of Weberian characteristics parallels regional differences in growth performance. Specially, the four cases of East Asian countries which account for so-called East Asian Four Tigers epitomize, during concerned period, both high growth and high Weberian bureaucratic traits. However, this growth with bureaucratic structure was not without any sacrifices. Strong state autonomy insulate outside influence that may erode its policy agenda. States, to maintain its main driving force and attain strong autonomy, inevitably form a regime that certain political elites dominates and that is isolated from any other social forces or pressures, in turn it suggests the development of public goods and public wealth. Therefore, the civil society is less likely to appear in such social conditions. And the major flaw led by this developmental model is entailed by its ignorance towards distribution where the main focus is paid upon development and growth. (Lee, 2009). Political institutionalization theory, suggested by Huntington, addresses that,at the early 4

5 stage of development, authorities should be centralized on the hand of modern elites in a way that can control the mass public, which could be analyzed to pursue strong elitists perspectives. This emphasis on central authority and institutionalization of such had developed into a rationale that justifies authoritative regime in developing countries where little infrastructure prevailed. And this was not the exception with East Asian developmental states. Authoritative institutions generated backgrounds for political corruption that later dismantled domestic political arena. And for most, this emphasis on state autonomy created unequal access where capitals and firms are allowed to participate in the political process whereas civil society is isolated from it(lee, 2009). Literatures have been published with regards to this state-led strategy that sets economic growth as priority has generated consequences on democratic foundations. Prezeworski(2000)suggested that the form of regime is not significantly related to its economic growth through statistical analysis. Sirowy and Inkels(1990) suggested that there is other variables that could contribute to economic growth other than the form of regime. However, less attention has been shared with regards to Evans s former argument with regards to bureaucratic structure and economic growth. Libman(2012) suggested how the size of bureaucracy is negatively associated with economic growth in the case of Russian regions. And in doing so, Libman(2012) tested empirically with data that there is significant negative relations between the two variables. This result suggests counter-wise as what Evans might have suggested. But, even this lacks further development in analyzing how Weberianness of bureaucratic features could contribute to economic growth after the Cold war era. To test whether Evans s argument is still adaptable after the cold war era, this article uses cross-sectional data on bureaucratic professionalism to test its relevance with economic growth. By narrowing the time span after 2008 economic crisis, this article tries to answer whether the bureaucratic features are still relevant in state s economic growth. III. Research Designs In this article, the main hypothesis to test is based upon Evans and Rauch(1999). With regards to their work, it tries to test the hypothesis of whether bureaucratic features that could be said to hold Weberianness have positive relation with economic growth rate. Evans and Rauch(1999) addressed a basic equation of which standardized form is: % Change in GDP per capita = (real GDP per Capita 1965) (average years of schooling 1965) (Weberianness score) (1) 5

6 And through empirically testing this hypothetical theory that Evans and Rauch(1999) suggested with new dataset comparable to that of what Evans and Rauch(1999) formally used, this article tries to answer the question whether their argument is still adaptable today. 3.1 Hypothesis According to Evans and Rauch(1999), Weberianness scale consists of mainly two parts. First, Weberianness Scale concerns when public employee is hired, the weight is put on education an formal entrance examination system. Second, predictable careers and long-term employment are important for crating a working environment for bureaucracy where meritocracy is rewarded. Based on this two important features of Weberianness scale that Evans and Rauch(1999) suggested, two hypotheses of this paper that relates bureaucratic characteristics to economic growth arise. Hypothesis 1: If the country is more likely to have meritocratic entrance examinations when hiring its bureaucratic employees, it is more likely that it experiences higher growth of GDP per capita. (2) Hypothesis 2: If the country is more likely to reward its bureaucrats with long-term employment and predictable careers, it is more likely that it experiences higher growth of GDP per capita. (3) 3.2 Data To test the two hypotheses, the source of data is QoG standard data published by QoG Institute of University of Gothenburg is used. QoG s cross-sectional data, published in 2017, examines 194 countries and their quality of government. And the data for year of 2013 is prioritized. Therefore, other control variables and dependent variables are extracted concerning year of For independent variable, two variables from QoG standard dataset is used for each hypothesis 1 and hypothesis 2. Index of closedness(closed Public Administration) and index of professionalism(professional Public Administration) are used respectively to test each hypothesis. Index of closedness is relevant to whether specific government has formal entrance examination institutionalized for hiring its personnel. Closedness index measures to 6

7 what extent th public administration is more closed or public-like, rather than open or private like. On the other hand, index of professionalism is relevant to independent variable of hypothesis 2, whether the country is more likely reward its bureaucratic personnel with predictable careers. Both of indexes of closedness and professionalism reflect the mean value of survey question Table1. Index for main independent variables and measurement Index Measurement Index of Closedness 1. Public sector employees are hired via formal examination system 2. Entry to the public sector is open only at the lowest level of the hierarchy 3. The terms of employment for public sector employees are regulated by special laws that do not apply to private sector employees. Index of Professionalism 1. When recruiting public sector employees, the skills and merits of the applicants decide who gets the job. 2. When recruiting public sector employees, the political connections of the applicants decide who gets the job. 3. The top political leadership hires and fires senior public officials. 4. Senior public officials are recruited from within the ranks of the public sector. Main dependent variable is, as suggested by Evans and Rauch(1999), the percentage of change of GDP per capita in each country. To control the effects of 2008 economic crisis and to reflect the most current status of economic growth, the dependent variable is extracted from percentage of change in GDP per capita from 2008 to The source of data is World Bank database. % Change of GDP per capita ( )= [{(GDP per capita in 2013) (GDP per capita in 2008)}/(GDP per capita in 2008)] *100 (4) Evans and Rauch(1999) controlled for former GDP per capita level to control the initial per capita levels and initial human capital levels separately. The logic behind this is firstly suggested by the fact that more highly developed bureaucracies are more likely to be found among the developed countries. And also to avoid the criticism that Weberianness is simply a proxy for overall level of development or existing stocks of human capital, they controlled 7

8 for the initial average level of schooling for each countries, which accounts for average schooling years in the total population over 25. And both control variables are the score in In this article, however, as an index of preexisting conditions of each economic background, only GDP per capita of 2000 is controlled, of which source of data is World Bank Database. Because of existing strong correlations between GDP per capita of 2000 and average years of education in 2000 for each country, only GDP per capita is controlled for initial conditions. Instead, to control for development of human capital alternative variable of average schooling years, which accounts for the averages years schooling spent by populations over age of 25 in 2010 is controlled. Considering the time-scope of dependent variable from and the strong correlations between each initial conditions, average year of schooling in 2010 is more adequate to control for the effects of development of human capital and change of GDP per capita. And the data is extracted from Barro-Lee Data set which provide educational attainment data for 146 countries. And last control variable is the income level of each country. Instead of classifying countries into regional distribution, by using cross-sectional data, this article tries to examine how economic classes where countries are part of could affect the outcome of relationship between bureaucracy and economic growth. Whereas Evans and Rauch(1999) only focused on developing countries, the variable of high level income countries, upper middle level income countries, lower middle level income and low income level countries are added as dummy variable which are extracted from World Bank Database. IV. Results Through linear regression test, this article tries to analyze whether the Weberianness of bureaucracy still is in significant and positive relations with economic growth, as Evans and Rauch(1999) suggested. Through testing two hypotheses with empirical data, it tries to solve whether the argument suggested by Evans and Rauch(1999) is still adoptable. The result of the regression model is summarized in Table 2 and Table 3. The first hypothesis that tries to verify the causal relationship between formal bureaucratic entrance examination with economic growth is shown in model 1 to model 5. The variable that showed constantly significant was the former economic conditions. This suggests that countries where former GDP per capita level is high are associated with slow rate of economic growth rate. As is expected by economic theories, where economic conditions are high, it is highly likely that those countries are associated with slower growth rate. The main independent variable, bureaucratic closedness, which indicates the level of institutions that is prone to have formal recruitment system, is shown significantly negatively 8

9 correlated with the economic growth. This is partially different from what Evans and Rauch(1999) suggested. Evans and Rauch(1999) suggested in their paper that their Weberianness scale is conducted of importance of exams in recruiting civil servants to the core economic agencies and more generally. The result of their works indicated that the Weberianness in positive correlation with economic growth rate between Figure 2 Effect of bureaucratic closedness on % change of economic growth( ) However, the result suggested opposite correlation from Evans and Rauch(1999) in this paper. The higher the degree to which government depend on formal examination system to recruit its personnel, the more likely it is faced with slower rate of economic growth. When controlled for the level of income of country classified by World Bank dataset, to be more specifically, this tendency showed constant significant relationship in High income countries and Lower middle income countries. The best example, as drawn in attached scattergram, could be suggested by the case of France. In short, hypothesis 1 tuned out negatively significant and this was true of countries that are classified as high income and lower middle income. Table 2 9

10 Linear regression result of bureaucratic closedness on % change of economic growth( ) model1 model2 model3 model4 model5 bureaucratic closedness * (0.0602) * (0.059) (0.1932) * (0.5515) (0.151) bureaucratic professionalism Average year spent at schooling(25+) (0.3549) (0.340) (0.335) (0.348) (0.308) Former GDP per capita(2007,$) * (0.000) ** (0.015) *** (0.000) *** (0.000) *** (0.000) High income countries (0.372) Upper middle income countries ** (0.0308) Lower middle income countries (0.137) Low income countries 1.732* (0.091) Number of countries Adjusted R-squared (* p<0.1, **p<0.05, *** p<0.001) Hypothesis 2, which tries to clarify the existing correlation between If the country is more likely to reward its bureaucrats with long-term employment and predictable careers, it is more likely that it experiences higher growth of GDP per capita, is tested through separate regression model, models from model 6 to model 10. The test on overall countries showed statistically non-significant correlations between bureaucratic professionalism and change of economic growth. Only former GDP per Capita level, as suggested by testing hypothesis1, proved to be significant. However, when controlled for the classified income level provided by World bank, one group showed statistical significance that is relevant to Evans and Rauch(1999). Countries that are classified as lower income group showed positive correlation between bureaucratic professionalism and the degree of economic growth. 10

11 Table 2 Linear regression result of bureaucratic professionalism on % change of economic growth( ) bureaucratic closedness bureaucratic professionalism model6 model7 model8 model9 model (0.113) 1.979* (0.051) (0.138) 1.665** (0.0998) (0.1157) Average year spent at schooling(25+) (0.487) (0.4077) (0.502) (0.474) (0.4812) Former GDP per capita(2007,$) *** (0.000) (0.176) *** (0.000) *** (0.001) ** * (0.000) High income countries ** (0.013) Upper middle income countries (0.236) Lower middle income countries 2.198** (0.030) Low income countries (0.2901) Number of countries Adjusted R-squared (* p<0.1, **p<0.05, *** p<0.001) Whereas Evans and Rauch(1999) only used data from so-called developing countries, this article used cross-sectional data regardless of the stage of development. Additionally, World Bank no longer classifies countries according to the stage of development that countries are undergoing. To generalize Evans and Rauch(1999) and clarify wether it could be adopted in today s cross-sectional areas, this article tested two hypotheses that was suggested in Evans and Rauch(1999) by using different data. The results are partially contradicting and partially supporting Evans and Rauch(1999). For 11

12 meritocratic recruitment of bureaucratic personnel, there exists negative correlations between meritocratic recruitment and % of change in GDP per capita. This is proving hypothesis 1 in a negative direction. And for hypothesis 2, there is no statistically significance between bureaucratic professionalism and economic growth. Only for the case of lower income groups are positively suggesting that bureaucratic professionalism accounts for growth rate. If it could be argued that lower middle income countries are those countries that traditionally classified as developing countries, Evans and Rauch(1999) s argument could partially be supported due to the findings. V. Conclusion Unlike former analysis on the relationship between economic growth and meritocratic bureaucracy provided by Evans and Rauch(1999), this article finds that Evans and Rauch(1999) is no longer in present. The myth that has supported the economic growth of developmental states in 1970s and 1980s is shown to be falsified in present economic conditions. Meritocratic bureaucracy does not hold significant positive effect on economic growth after Even, it is statistically found that meritocratic bureaucratic feature has negative effect on economic growth. And further case study is needed to verify why such phenomena take place in presence. 12

13 VI. Bibliography Charron, N., Dahlström, C., & Lapuente, V. (2015). Measuring Meritocracy in the Public Sector in Europe. QoG Working Paper Series, 8, 8. Chibber, V. (2002). Bureaucratic Rationality and the Developmental State 1. American Journal of Sociology, 107(4), Cho, W., & Porumbescu, G. (2011). Weberian Bureaucracy and Performance of Civil Service: Cross-County Analysis. Seoul National University, Clements, B. J., Gupta, S., Karpowicz, I., & Tareq, S. (2010). Evaluating government employment and compensation. International Monetary Fund, Fiscal Affairs Department. Dahlström, C., Lapuente, V., & Teorell, J. (2011). Dimensions of bureaucracy II: A crossnational dataset on the structure and behavior of public administration. QoG Working Paper Series, 6. Evans, P. B. (1989, December). Predatory, developmental, and other apparatuses: a comparative political economy perspective on the third world state. In Sociological Forum (Vol. 4, No. 4, pp ). Kluwer Academic Publishers-Plenum Publishers. Evans, P., & Rauch, J. E. (1999). Bureaucracy and growth: A cross-national analysis of the effects of" Weberian" state structures on economic growth. American sociological review, Evans, P. B. (2012). Embedded autonomy: States and industrial transformation. Princeton University Press. Ho, S. P. (1987). Economics, economic bureaucracy, and Taiwan's economic development. Pacific Affairs, Huskey, E. (2010). Elite recruitment and state-society relations in technocratic authoritarian regimes: The Russian case. Communist and post-communist studies, 43(4), Leff, N. H. (1964). Economic development through bureaucratic corruption. American behavioral scientist, 8(3), Lee,Y.H.(2009).The Institutionalist Political Economic Developmnetal State Theory and Democracy. 21st centry Political Science Review, 19(2), Lee,Y.H. (2016). Regulatory Reform and the Reinforcement of the Bureaucratic Power in South 13

14 Korea. Journal of East and West Studies, 28(1), Libman, A. (2012). Democracy, size of bureaucracy, and economic growth: evidence from Russian regions. Empirical Economics, 43(3), Olsen, J. P. (2006). Maybe it is time to rediscover bureaucracy. Journal of public administration research and theory, 16(1), Öniş, Z., Amsden, A. H., Deyo, F. C., Johnson, C., & Wade, R. (1991). The logic of the developmental state. Pollock III, P. H. (2015). The essentials of political analysis. Cq Press. Rauch, J. E., & Evans, P. B. (2000). Bureaucratic structure and bureaucratic performance in less developed countries. Journal of public economics, 75(1), Seligman, L. G. (1964). Elite recruitment and political development. The Journal of Politics, 26(3), Silberman, B. S. (2005). The bureaucratic state in Japan: the problem of authority and legitimacy. CORNELL EAST ASIA SERIES, 123, 226. Van Rijckeghem, C., & Weder, B. (2001). Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?. Journal of development economics, 65(2), Woo-Cumings, M. (1999). The developmental state. Cornell University Press. 14