From  ‘State plus Market’ to ‘Market plus Democracy’ *

Hans Lim A Po

A paradigm shift

My interest in the mechanisms that govern society was recently aroused by my involvement in a national committee, which was assigned with the task to design a Social-Economic Council for Suriname. The terms of reference included defining the role and tasks of such a Council, its relationships with other institutions in society and drafting of required legislation. Draft legislation has been prepared and submitted for approval to Parliament recently. 

In confronting the question as to how the main governing mechanisms of society (‘state’, ‘market’ and ‘civil society’) function, we noted a paradigm shift over the last decennium. A shift that can be characterized as a shift from ‘state plus market’ to ‘market plus democracy’. This shift is global of nature and, to a large extent, beyond control or even influence of small countries like ours. Emerging from this shift is the challenge, which countries have to take up in organizing their institutions so that development can be generated from the forces of ‘market liberalism’ within a framework supported by society and managed by the state.
The conclusion was that a Social-Economic Council as an institution of ‘ the shared public domain’ could best provide the powers to countervail market excesses, strengthen the support base for social economic policies and enhance the steering capacity of the Government. 

The changing scene 

Three developments were considered to be standing out on the global scene. The first development is substituting the state as the prime generator of growth by the market.  

              *This is a version of the contribution to the Roundtable Discussion on: ‘The Changing relationship between Political Democracy, Social Democracy and Market’ in which parts of a presentation made in March 2003 for the Suriname Association of Economists on  ‘Good governance in the shared public domain’ have been incorporated 

The state is no longer considered as pre-eminently responsible for economic growth. It is argued that the market, operating within an appropriate framework established by the state, is better suited as the main generator of economic growth. In the past decennium, these neo liberal views of the Western World have been adopted and promoted by international organizations like the World Bank and IMF.  Developing countries have no choice but to follow suit.

The second development is an increase of importance of identity, social norms and values, resulting in a cry for social inclusion. An operable right for all citizens to be respected contributing members of society. A number of NGO’s came into being in search or need for recognition of aspects of identity rather than just in pursuit material interests. The debate in Europe about immigration is essentially a debate about the fear for loss of identity. 

The third development follows from the two previous ones. It is a decrease in legitimacy of the political process. The political process seems incapable of changing from within in response to new global and social demands. The citizenry too seems incapable of bringing about desired changes in the culture of politicians. Institutions tend to be conservative and maintain their established structure, norms and values. This in particular is true for political institutions, which provide a power base and serve ruling politicians well.         

The governing mechanisms

Two conflicting forces determine the relationship between state, market and civil society as governing mechanisms. These forces are complementary because they support each other, but at the same time they compete with each other for supremacy.
Their complementarity lies in the objective to encourage development, which is the common, overriding and all embracing objective of each of the three governing mechanisms. Development in this context should be interpreted in a broad sense. Both functional (‘as a process’) and intrinsic (‘as an objective’), development is more than economic progress. It involves increase of economic efficiency as well as social justice and long-term sustainability. 

The struggle for supremacy between the governing mechanisms results from conflicting contemporary political views. Until recently those views were more or less extremes on a continuum, but when liberal democracy and market economy became the dominant doctrines in the world (refer to Fukuyama’s ‘end of history’), only differences in emphasis related to historic and cultural factors remained.
The most important differences in emphasis are between the strict capitalistic-oriented Anglo-American model and the more socially oriented Rhineland model. The first model is connected with a societal order in which ‘competition and conflict’ are the dominant values. In the second model, the dominant values are ‘consensus and compromise’.
The paradigm shift of ‘state plus market’ to ‘market plus democracy’ has an impact on both of these liberal doctrines. In the first doctrine however, civil society does not supplement nor does it correct functioning of the free market and of the liberal state, while in the second doctrine, intervention by civil society is considered legitimate and effective. 

Roles in the new paradigm 

The roles of the state, market and civil society - as governing mechanisms – had to be redefined against the background of the contextual developments outlined above.   Another point of departure was a developmental perspective, which is in line with currently prevailing development theories and which encompasses all aspects of society with a social-democratic and not a purely neo liberal political orientation. 

Compared to the market and civil society the state as a governing mechanism is unique because it performs its public tasks on a ‘compulsory basis ’ and not ‘voluntarily’. State power is used forcefully and consistently so.
The fundamental public tasks of the state are to ensure law and order, to take care of safety and security and to guarantee social justice for all. The responsibility of the state for ensuring law and order is based on the notion that the rule of law and an independent judiciary are guarantees for freedom and equality. Both these basic values are the cornerstones of democracy. Social justice as a responsibility of the state ensues from     ‘human solidarity’, the third basic value of a social-democratic system. 
Current focus on the protection of political and social human rights within the international order shows clearly that ongoing global developments have increased the topical interest of these fundamental tasks of the state.

The role of the state however, is not restricted to these fundamental tasks. The state also has a responsibility for the course and the outcome of the development effort. This responsibility is subject to a far-reaching re-orientation in the light of the contextual developments noted above. Different from the past, the state no longer is considered to be solely and fully responsible for the public tasks geared to development. Within the envelope of tasks of the state we should make a distinction between public tasks for which the state indeed bears sole and full responsibility (such as infrastructure) and public tasks for which the state bears ultimate responsibility while at the same time sharing responsibility with others for sound policy decisions and policy implementation as well as good governance. Poverty alleviation may serve as an example of a domain, for which state, market and civil society bear responsibility jointly. 

Participating in the market is theoretically voluntary, but due to the economic interdependency of citizens, participation is a ‘practical necessity’.
The importance of the market is derived from its capacity to generate welfare and prosperity for the public good by transforming individual interests into public interests through coordination, adjusting and steering. Individuals look after their own interests according to their own preferences; the market and its price mechanism ensure proper co-ordination of private and public interests. In this manner increased economic efficiency is attained serving public interest as well.

Three fundamental reservations must be made with respect to this orthodoxy. The first reservation is that economic efficiency presupposes the market to function according to a fixed set of rules. Non-compliance with these rules, for instance in the case of monopolistic positions or unequal access to information, results in infringement of the economic efficiency of the market mechanism.     

The second reservation is that from a developmental perspective increased economic efficiency does not automatically result in overall welfare, well-being and prosperity. The essential element here is that increased economic efficiency should, at all times, be balanced against social justice and long term sustainability.

The third reservation relates to the non-existence of mechanisms and a concern to redress market failure and the possible uneven distribution of its harmful effects throughout society. Keys for distribution of the cost of market failures tend to bear no relationship to any principle of fairness; they are more often than not, the outcome of an allocation process in which the weaker bear the brunt.

The result of these three reservations is that the market must be conditioned in such a manner that the general interests of society are being guaranteed. Framing, supplementing and correcting the free market by means of state regulations and by participation of those involved in the economic process will certainly strengthen the economic, democratic and moral legitimacy of the market. 

Associative clusters are the components of civil society. Citizens on a voluntary basis form these clusters and as they join multiple clusters, patterns of overlap emerge. The aspirations of civil society could be reduced to two issues. The first aspiration lies at the political side of civil society. By identifying collective problems and reinforcing public opinion, civil society attempts to influence political processes at state level. The right of freedom of speech is central in this respect. 

The other aspiration emphasizes the social side of civil society. The underlying reasoning here is that the associative clusters of civil society are social networks in which social capital is stored as a capacity to co-operate. By utilizing this social capital, civil society adds value to the development process and it may justifiably bear co-responsibility for public tasks. In this respect reference can be made to public tasks such as health care and environmental protection. These are tasks, which the government alone cannot handle and due to their nature cannot be left to the market mechanism only. At the same time, they are well suited to be dealt with in an institutionalized partnership of state, market and civil society. In this respect the right of co-determination is key.

Exercising this right of co-determination presupposes a willingness and preparedness on the side of the state to share its regulatory and executive powers with social organizations over which it has no direct control. Experience shows that only in crisis situations such willingness seems to be present. Unfortunately however, politics is still hesitant in sharing actual responsibility with civil society for policymaking and policy implementation. After all politics would lose its primacy in favour of the primacy of civil society. 

On the other hand, it also presupposes that civil society avails of the capacity and the strategic willingness to induce the transformation of citizens from policy subjects to co-actors in policy-making and policy-implementation. In general it seems that the will exists to do so, but one is also aware that in practice the needed specific expertise is insufficiently present on the side of civil society for its effective participation in policy-making and governance.

The shared public d omain 

The shared public domain is a socio-political system consisting of more or less autonomous sub-domains. The state considers these autonomous sub-domains to be part of its public tasks and responsibilities but ‘out-sources’ formulation, regulation and implementation of policies in these sub-domains to institutions of partnerships of state, market and civil society. Examples of such sub-domains are town and country planning, environmental protection, public housing, health care, education, social insurance and employment conditions.

Intrinsic to the nature of public tasks is the state’s ultimate responsibility. This also counts for the sub-domains within the shared public domain. The difference between sub-domains outside and sub-domains inside the shared public domain is that for the first category (the sub-domains outside the shared public domain such as administration of justice, police and taxes) it is the state alone who bears full responsibility, while for the second category (sub-domains inside the shared public domain), responsibility for policy formulation and implementation as well as regulation is shared between the state, market and civil society. The sourcing out of public tasks to the shared public domain is done for reasons of legitimacy and effectiveness. Legitimacy is achieved because public support for decisions increases with participation of market and civil society. Consequently, it strengthens the democratic quality and degree of policy-making and enhances the implementation capacity of institutions.
Shared responsibility contributes to the effectiveness, because it not only improves the quality but also increases support for development policy. Indeed, a development policy, designed in this way, will not only be geared to economic efficiency but also to social justice and long term sustainability.

Participation of state, market and civil society and each with its own foundation of human configuration, results in unique dynamics within the shared public domain. Through partnerships of the three sectors, policy is jointly established through trade-offs of policy options. Due to the functional relationship of the three sectors, one sector cannot impose its preferred policy options on the other even not with the asymmetry, which exists in the balance of power between the sectors. On the contrary, each sector is dependent on the other for achieving its own objectives. Therefore, each sector will attempt to pursue its objectives by choosing, with a view to its own perspective, those policy options that may become part of a general policy and in doing so contributing to the realisation of common development objectives. In this manner, overall development policy takes into account sector-specific interests through a process of consensus and compromise rather than conflict and contention.

In addition to these internal dynamics, the shared public domain has other specific institutional characteristics. The most important characteristic concerns the decision-making process at policy level by institutions of the state, market and civil society. Examples in Suriname are the Planning Council and the Land Authority (both of which unfortunately do not function as yet). Another example within the area of spatial planning is the Environmental Council, which will find its legal basis in the Environmental Act currently being drafted. And finally, in the area of employment conditions, the Social and Economic Council for which founding legislation has been submitted to Parliament recently.

Due to these special institutional characteristics, governance in the shared public domain is also of special nature. It is an interactive process in which individuals and public and private institutions participate to find solutions for social issues with policy dimensions. Three particulars become clear.
The first particular concerns the decision-making process itself. It is about decisions, which are interlinked with policy issues and therefore complex by nature. The decision-making process is a knowledge-intensive, analytical and integrative process. In order to meet these demands, problems have to be reduced to manageable proportions without losing sight of the many-sided interests of the parties involved. Additionally, the ‘collective creativity’ of those participating in the process is heavily relied upon in reaching consensus and compromise.

The second particular is the participatory nature of this process. Decisions are not taken without involvement of all interested parties. The process offers at least the possibility for all parties concerned to contribute.

The third particular has to do with the style of decision-making. Within the shared public domain, decisions are taken through ‘negotiating’ (compromising by trade-offs); ‘problem-solving’; ‘joint orientation’ and the ‘willingness' to subordinate group’s policy preferences. Neither ‘confrontation’ nor exploitation of asymmetric relations is part of this style of decision-making. Instead, it requires a process that is driven by the belief that co-operation adds value to the whole process.

Governance in the shared public domain 

As for each form of governance, good governance in the shared public domain has to be safeguarded. Governance will have to conform to the principles of due care. Two important pillars, on which these principles for good governance in the shared public domain rest, are access to information and procedures for public participation.

As far as access to information is concerned, two aspects should be distinguished. The first aspect is access to all factual information relevant for sound decision-making. All persons, who are currently or potentially involved in decision-making, must in principle have access to the same factual information (thus creating a ‘level playing field’). Access must be free and unhampered. 

The second aspect is the policy dimension of decision-making. Policy is always aimed at development in broad terms, so that it not only includes economic efficiency but also social justice and spatial planning geared at sustainable development.
This policy framework of general objectives has to be translated into specific policy strategies and policy options. Translation is a political responsibility because it presupposes political choices. The choices and the underlying considerations should be clearly expressed and publicly communicated by politics. Only then will they be perceived as something common (‘ownership’) and form the basis for effective transformation into norms that determine behavior in the specific sub-domains of the shared public domain. They are preconditions for effective decision-making.
When politics does not discharge of this responsibility, the danger exists that decisions in the shared public domain are either not taken or will be a shot in the dark only and will run the risk of not being implemented. 

The participatory process has two forms of participation. Depending on the rationality of the specific sub-domain concerned, participation can be through representative organizations or directly. Clear examples in this respect are the sub-domain of employment conditions in which representation is necessary because it concerns the promotion of collective (general and group) interests and the sub-domain of environmental protection in which collective interests and individual interests are at stake. 

The same rationality determines how the participatory process of the sub-domain concerned has to be institutionalized. The process relating to the promotion of collective interests by representative organizations are of a ‘closed’ nature. In cases where individual participation should be possible, the process will be ‘open’, so that anyone, whose interest is threatened or damaged, is able to freely join in the decision-making process.

The Social-Economic Council 

The foregoing is an outline of the thinking behind the architecture of a Social-Economic Council for Suriname. By way of summary, a brief characterization of the main constituting elements of the proposed Council follows.

The rationale for a Social-Economic Council is to enhance government’s ability to steer the country and to broaden its support base. It is assumed that these objectives can be achieved if government shares responsibilities for its social-economic policies with social organizations. Institutions of political democracy are complemented by an institution of representatives of the government and social organizations promoting sustainable development through harmonization of social-economic interests.  

In its traditional corporatist version a Social-Economic Council would be tripartite- based with only representation of government, business and labor. In today’s world, NGO’s are as important as the traditional social partners in establishing what the prevailing social norms and values should be. Participation in a structured dialogue on social-economic policy therefore, needs to be extended to involve other interest groups of civil society.  

The Social-Economic Council will discharge its responsibilities by giving the Government   advice on social-economic policy issues. In the version envisaged for Suriname, advice will be non-binding unless the subject matter is employment or conditions of employment, in which case advice based on consensus will be of the nature of ‘a social accord’ and therefore binding. This formula aims at respecting the primacy of political democracy while acknowledging the legitimacy of joint decision-making in a shared public domain. 

Consensus and compromise rather than competition and conflict should be the dominant values of social-economic interaction conducive to effectiveness of the  Social-Economic Council.  And the political history of coalition government, ethnic accommodation and a socially oriented version of capitalistic development policies, should be the texture for a pattern of social-economic interaction in which a Social-Economic Council could effectively operate in Suriname. 

The Social-Economic Council proposed for Suriname will consist of representatives of government (5 seats), labour (4 seats) and business (4 seats). 

The centre of gravity of the work of the Council will be in a number of committees, of which the members are not restricted to the members of the Council itself. This modus operandi should ensure proper participation in the dialogue about social-economic policy issues by other social organizations then trade unions and employers associations on matters of their specific concern. 
Critical in the decision making process of the Council will be the preparedness to address issues from different perspectives but focused on a shared perception of what the common interest is. It suggests the need for an institutional ‘negotiation and problem-solving’ culture based on expertise, agreement on relevant facts and an appreciation for compromise and consensus within a common framework of principles and basic priorities.

Conclusion

By way of conclusion I submit three propositions for further debate:       

1. The concept of a Social-Economic Council is perceived to be closely linked to the concept of the shared public domain, unfortunately still, a poorly studied area of political and government science. Conceptual thinking suggests that added value might come from cooperation through sound institutional framing of ‘the social dialogue’, as part of a shared public domain, in a  Social- Economic Council. 

2. A Social-Economic Council will foster social inclusion by devolving governance to self-governing organizations as the social foundation of plural political interests.
This process is fundamentally different from the politics of coalition and accommodation which the leading political parties practice, in the sense, that in that culture political bargaining takes place ‘at the top’ while a democratic process based on social inclusion suggests that harmonization of interests happens ‘at the base’.  A strategy of consensus politics could comprise elements of both.  

3. The state is ineffective in dealing with major societal issues like poverty reduction, social security, and eradication of diseases and conservation of the environment. A  Social-Economic Council might be an appropriate forum in which market and non-market dimensions of these issues could be integrated in workable strategies and policies.   

Paramaribo,

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© 2004 F.H.R. Lim A Po Institute for Social Studies