Financial Sector Development in Africa: Opportunities ... - World Bank

The Potential of Pro-Market Activism for Finance in Africa: A Political Economy Perspective 211
competitive private (banking) sector. A prime example is seen in the
case of Chile, where the banking sector has become more diverse
and competitive in recent years and there is evidence that private
commercial banks, forced to reach out to new customers, tend to
support activist policies that help them to serve SMEs and that promarket
activism has become relatively effective (De la Torre, Gozzi,
and Schmukler 2007; De la Torre, Martínez Pería, and Schmukler
2010). However, in the extreme case of a fragmented private sector,
activist policies are less likely to work. Fragmentation constitutes an
obstacle to collective action, so governments would have difficulties
engaging with the private sector in policy making.
2. The revenue base of the state. When governments have access to sources
of revenue other than domestic bank finance or taxes from domestic
private sector activity through international links—such as credit from
international capital markets or, as is more often the case in African
countries, aid and exports of natural resources—governments are less
structurally dependent on the domestic private sector (Boone 2005;
Gordon and Li 2009; Maxfield 1990; Moore and Schmitz 2008; Winters
1996, 41). Thus, in a situation where the degree of reliance on the domestic
private sector as a source of government income and economic
prosperity is low, incentives to cooperate with the domestic private
(banking) sector to promote business-friendly and activist financial
policies are also likely to be low. However, the effects of government
income from sources other than the domestic private sector are not
adverse in all circumstances because these alternative revenue sources
can give governments a degree of autonomy from the domestic private
(banking) sector that can also be used wisely. This could particularly be
the case if conditions are attached to the use of the external revenues, as
in the case of aid or in the context of a strong private sector (Maxfield
1990, 1994; Winters 1994).
Future research on the potential of activism as a development strategy
could also provide a high added value by considering the role of state
capacity. Technical capacity (including adequate organizational and
managerial resources) emerges as an important intervening variable in
assessing the potential of pro-market activism as a tool to increase access
to finance, especially because pro-market activist strategies often require
a commitment to sustainable financial inclusion from multiple actors and
effective coordination between them. Technical capacity seems to be a