Synergistic or effective state-business relations are seen as a key determinant of economic growth and structural transformation in low income countries (Hausmann 2014). They are important in several areas of policy and practice, including macroeconomics, trade, industrial development, taxation, public expenditure, infrastructure, competition, anti-corruption, transparency and accountability, and private sector development.
There are several mechanisms through which state-business relations support economic growth. State commitment to basic policy can minimise uncertainties in the minds of investors and, by doing so, raise the rate of investment. Effective state-business relations can also lead to a higher rate of investment by creating an institutional environment where the state provides high quality public goods such as infrastructure, effective public administration (or the lack of corruption) and secure property rights (Sen 2013b). A well-organised private sector can clearly articulate priorities for public investment and can monitor the quality of such investment (te Velde 2009). Effective public administration and no expropriation of property rights of the private sector are more likely to occur with professionally-run and well-organised government agencies and through the direct and indirect pressures that business associations place on government officials (te Velde 2009). Effective state-business relations can also influence the productivity of investments by minimising the possibility of rent-seeking and collusive behaviour which may lead directly to unproductive economic activities (te Velde 2009).
There are some suggestions that state-business relations can be part of the process of democratising governance, although evidence is limited. Effective relations imply a broader and deeper set of linked institutional arrangements that can enhance participation and accountability (Leftwich 2008). Moore and Hamalai (1997) suggest that robust and representative business associations strengthen civil society and intensify accountability and participation in relations between citizens and the state. Maxfield and Schneider (1997) argue that effective state-business relations that encompass a variety of private sector actors can contribute to the widening and deepening of the institutional environment in which economic and political decisions are made.
- Hausmann, R. (2014). The productivity of trust. Project syndicate. See document online
- Kathuria, V., Rajesh, R., & Sen, K. (2013). State business relations and productivity in Indian industry. In K. Sen (Ed.), State-business relations and economic development in Africa and India. London: Routledge, UK.
- Maxfield, S., & Schneider, B. R. (Eds). (1997). Business and the state in developing countries. Ithaca: Cornell University Press.
- Sen, K. (Ed.). (2013b). State-business relations and economic development in Africa and India. London: Routledge.
- Te Velde, D. W. (2009). Analysing the economics of state-business relations: A summary guide (IPPG Discussion Paper No. 23B). Manchester: IPPG. See document online