State-business relations are relations between the public and private sectors. They can take the form of formal, regular, co-ordination or informal ad hoc interactions (te Velde 2013), and their scope can include the whole economy or target specific sectors, types of firms or policy processes. State-business relations may be “passive”, where the state does not engage with specific private sector actors but sets the formal and informal rules of engagement with the private sector. They can also be “active”, where the state may directly intervene in favour of certain firms, industries and sectors. Examples of “passive” state-business relations are the setting up of a competition authority by the government to make sure that anti-competitive practices by any firm are discouraged, or the introduction of an investment climate reform measure such as reducing the days that it takes a firm to get a licence to start operations. Examples of “active” state-business relations are when the state provides subsidies to specific firms in return for their success in export markets or in creating employment in economically backward regions.
Characteristics of state-business relations that make them effective in promoting economic growth are (Haggard et al. 1997):
- transparency: the exchage of accurate and reliable information between business and government (Evans 1995);
- reciprocity: the capacity of state actions to secure improved performance in return for subsidies or other forms of state support (Doner and Schneider 2000);
- credible commitment of the state to predictable policies, deals or arrangements, which can be ensured through both formal and informal institutions (Sen 2013a);
- a stable policy environment provides a measure of security for private sector investment (Rodrik 1991, Harriss 2006);
- em checks and balances on government policies, tax and expenditure help ensure that taxation policies and the provision of public goods are appropriate and of good quality (te Velde 2013);
- close consultation, coordination and reciprocity between state and business (Sen 2013b).
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- Haggard, S., Maxfield, S., & Schneider, B. R. (1997). Theories of business and business-state relations. In S. Maxfield & B. R. Schneider (Eds.), Business and the state in developing countries. Ithaca: Cornell University Press.
- Harriss, J. (2006). Institutions and state-business relations: Improving institutions for pro-poor growth (IPPG Briefing Note 2). Manchester: IPPG. See document online
- Rodrik, D. (1991). Policy uncertainty and private investment in developing countries. Journal of Development Economics, 36(2), 229-243. See document online
- Sen, K. (2013a). The political dynamics of economic growth. World Development, 47, 71-86. See document online
- Sen, K. (Ed.). (2013b). State-business relations and economic development in Africa and India. London: Routledge.
- Te Velde, D. W. (2013). Introduction and overview. In D. W. te Velde (Ed.), State-business relations and industrial policy: current policy and research debates. London: ESRC DFID Growth Research Programme. See document online