To expand a bit on my question, I will propose the argument that the richest countries in the world at the moment can be divided into three distinct groups: The vast majority population-wise is industrial nations, the strategic resource producers (mainly oil), and finally the financial centres. (Hong Kong, Singapore, Luxembourg, Channel Islands etc.)

All of them have made their position by preferred treatment of local industry and finance. Oil rich nations through nationalisation, cartelisation and cooperation between oil producing nations, the financial centres by their favoured positions within a bigger trade system, and finally the industrialised nations of the world, who have all to a varying degree used protectionistic measures to encourage the growth of domestic industry.

There might very well exist a rationale for opening up trade barriers when the economy is sufficiently advanced that the artificial barriers imposed to encourage industrial growth instead leads to lethargy. For instance if the favoured status of domestic industry leads to underinvestment in certain sectors, and as a result a gradual degradation of international competitiveness follows.

But forcing trade liberalisation on nations not facing issues with maturing industries should be seen for what they are, exploitative policies, locking the target country into a position of economic dependency.

We should be careful about framing the debate on globalisation just around the issue of market liberalisation versus protectionism, however. As even many proponents of market liberalisation are starting to realise, the issue of state power in a developing country is even more important than the level of protectionism.

The reason should be obvious. Without a functioning, efficient state apparatus, using trade barriers to encourage growth in domestic industry will either turn out to be inefficient, as the trade barriers are rendered moot by lax enforcement, or domestic industry is stifled by predatory taxation, bureaucratic overhead or general lawlessness within the country.

Francis Fukuyama, maybe THE leading intellectual behind the push towards a democratic market-liberal world order, is an example of this change of focus. In his book State Building: Governance and World Order in the 21st Century
rightly focuses on how western aid to developing nations have been wasted because of the lack of a professional, strong state apparatus to channel the aid. In some cases the aid has actually been counter-productive, by undermining and replacing the structures and capacity of the domestic administrative apparatus. An example of this has been how western aid agencies has, effectively, "crowded out" state run services like health services by offering superior, alternative channels for these services.

But of course, what Fukuyama proposes as the solution to increasing state capacities fits snugly into the market-liberal mould. First of all, he agrees with the common cry of the West that less government is better government (or at least that it is so for most developing nations).

Accordingly, the government should cut down its responsibilities to core areas of interest, and focus on how to get better in those areas. And the way to increase the strength of these state institutions seems in my reading of Fukuyama to be a rather confused and non-focused mix of business theories and New Public Management approaches. Colour me doubtful...

What we can all agree on, hopefully, is that an efficient, rule-based bureaucracy is vital to the long-term growth of an economy. The size of the public sector does not really matter, as long as it is efficient enough to "compete" with market-driven alternatives.

If we look at only the economy, the main problem with the Soviet system was not the size of the government sector, but the gradual and accelerating decline in state efficiency from the Stalin era and onwards. China is in that regard a counter-example. There rapid economic growth grew rapidly under state control from the early eighties onwards. Only recently has the state started to really reduce the scope of its institutional control, while maintaining, and in many areas expanding the scope and strength of its institutions.

There is little evidence that Fukuyamas insistence on NPM and business strategies for increasing state efficiency in developing nations would actually work. Important factors that are vital to the professionalisation of a bureaucracy is the institutional memories of the institutions, as well as the culture within the state apparatus as well as the expectations and culture of the wider society in which it operates.

What is abundantly clear (at least to me) is that the neo-liberal "growth-formula" of opening up trade barriers AND decreasing the scope of state institutions in target societies can lead to a "double whammy", where both domestic industry and the capacities of the state apparatus are severely weakened. In such circumstances, sustained economic growth is extremely difficult. In fact, many of the targets of such reforms have instead experienced spectacular economic collapses.