Development: Theories, Policies, and Strategies

An Expert's View about Economic Trends/Outlook in the Philippines

Posted on: 10 Oct 2011

Development: Theories, Policies, and Strategies in Critical, Historical, and Interdisciplinary Perspectives

DEVELOPMENT Theories, Policies, and Strategies in Critical, Historical, and Interdisciplinary Perspectives Bonn Juego PhD Candidate & Lecturer Study Board for International Affairs E-mail: 3 October 2011 5 October 2011 12 October 2011 (7th semester) Lecture for the Master?s in Development and International Relations Programme Course on: ?Political Change and Development Theory? Department of Culture and Global Studies Aalborg University, Denmark 1 Lecture Agenda Parts I & II Part III A comprehensive review of An examination of the the debates on development development STRATEGIES THEORIES and that greatly contribute(d) to POLICIES the wealth and poverty of nations.... in the last 500 years.... 2 Development and History ? A Fundamental Development Question ? How rich countries got rich? ? Why poor countries stay poor? ? Why, in spite of being just as productive / efficient / hardworking as their First World counterparts, people in the Third World are so much poorer? ? H realize a ?good life?ow will poor countries and all of humanity ? ? History: the only laboratory in development studies, economics, and the social sciences ? 500 years of development history 3 Development and the ?Good Life? ?A state comes into existence for the purpose of ensuring life, and it continues to exist for the purpose of the good life.? ? Aristotle, in Politika (I 1252b) *Thanks to Wolfgang Drechsler for this quote. 4 My Interdisciplinary Approach to Development Studies ? Critical Political Economy: the politics behind the economy ? ?Social relations?: ?the political? & ?the economic? are organically connected ? Themes: relations, processes, conflicts, contradictions, change, power, class, interests ? Development Economics: wealth and poverty of nations ? Focus: the causes (not the symptoms) of poverty and underdevelopment ? strategies for catching-up and forging ahead ? Economic History: theory and practice (from 17th c. to 2011) ? history of economic thought (idea) ? history of economic policy (actual) 5 Modernization Theory and the Doctrine for Political Development Characteristics of Third World/Postcolonial nations Economic Modernization ? non-Western processes and values in polity, ?It is generally agreed that industrialisation of economy, and society ?international depressed areas? in the general ? ?pre-state, pre-rational, pre-industrial? interest...of the world as a whole. It is the way of achieving a more equal distribution of income ? policy-making: erratic, irrational, and pervaded by between different areas of the world by raising private interests incomes in depressed areas.... ?Studies in Political Development Series? ?The aim of industrialisation in international (US Social Science Research Council, depressed areas is to produce a structural Committee on Comparative Politics, funded by Ford Foundation) equilibrium in the world economy by creating productive employment for the agrarian excess Vol 1: Communications and Political Development (Pye 1963) population.? Vol 2: Bureaucracy and Political Development (LaPalombara 1963) Vol 3: Education and Political Development (Coleman 1965) ? Paul Rosenstein-Rodan (1943) Vol 4: Political Parties and Political Development (LaPalombara ?Problems of Industrialisation of Eastern and South-Eastern Europe? and Weiner 1966) Vol 5: Political Modernization in Japan and Turkey (Ward and Rustow 1964) ?It is possible to identify all societies, in their Vol 6: Political Culture and Political Development (Pye and Verba economic dimensions, as lying within one of five 1965) categories: the traditional society, the preconditions for take-off, the take-off, the Huntington?s ?Modernization Revisionism? drive to maturity, and the age of high mass- (from modernization to ?political order?) consumption.... ?These stages ... have an inner logic and continuity. ?[M]odernity breeds stability, but modernization breeds instability.... They have an analytic bone-structure, rooted in a It is not the absence of modernity but the efforts to achieve it which produce political disorder. dynamic theory of production.?? ? Samuel P. Huntington (1968) ? Walt W. Rostow (1960) Political Order in Changing Societies The Stages of Economic Growth: A Non-Communist Manifesto 6 Important points to reflect on regarding the ?generic form? of Modernization and Political Development Modernization of all social activities, except politics: ?It is ... to the issue of social control that we ?The problems of development ... involve less the gross should look in order to identify the elimination of old patterns and values and more the successful discovery of how traditions can contribute relationship between modernization to, and not hamper, the realization of current national theory and political development goals. Effective political development thus requires that a proper place be found for many traditional theory.... considerations in the more modern scheme of The theorists of political development things.? did not endorse the idea of dichotomy between the traditional ?Development in some field (sic) of human organization and the modern, nor did they argue can be usefully conceived of as being the replacement of the particularistic norms, functionally for the wholesale modernization and diffuse relationships, and ascriptive considerations of Westernization of all aspects of life.? tradition-based societies with the more universalistic, functionally specific, and achievement oriented patterns of action of more modern societies. In a ? Paul Cammack (1997) political culture, however, there is a constant Capitalism and Democracy in the Third World: place for particularism, for diffuse identifications, The Doctrine for Political Development and for attaching importance to nationality and place of birth.? ? Lucian Pye and Sydney Verba (1965) Political Culture and Political Development 7 Classic Theories of Capitalist Development: Classical Marxist, Classics of Imperialism, Dependency School, World-Systems Development of World-Systems Theory Theories of Capitalism Theory of Unequal (core - semi-periphery - Underdevelopment and Imperialism Exchange periphery) (metropolis-satellites) (capitalist development in (Raúl Prebisch; backward nations) ECLAC/CEPAL) ? Immanuel Wallerstein ? Paul Baran (1957): ?What ? Marx and Engels (1848): (1974a): ?Capitalism and a is decisive is that the capitalism as a ?historically world economy (that is, a economic development in progressive system? single division of labor, but underdeveloped countries multiple polities and (modernity through primitive is profoundly inimical to ? ECLAC?s Manifesto (1949): cultures) are obverse sides accumulation like colonialism the dominant interests in The Economic Development of the same coin.? and free trade) the advanced capitalist of Latin America and its countries.? Principal Problems ? Capitalism is ?a mode of production, production for profit in a market.? ? Raúl Prebisch (1959): ?Historically the spread of ? Wallerstein (1974b): ?It is technical progress has been a world system, ... because uneven and this has it encompasses the whole contributed to the division of ? Hilferding (1910); world. And it is a world ? Andre Gunder Frank the World economy into Luxemburg (1913); economy because the (1969): ?The metropolis industrial centers and basic linkages between the Bukharin expropriates economic(1915); Lenin peripheral countries parts of the system are surplus from its satellites (1916): structural constraints engaged in primary economic [i.e. and appropriates it for its due to imperatives of the production, with difference trade/exchange]....? own economic ?monopolistic? stage of the in income growth.? development.? world capitalist system 8 Historical Institutionalism and the Developmental State: the empirical cases of East Asia ? ?late industrialization?, ?catch-up?, and ?state-led development? 9 Thomas Robert Malthus, 1766-1834 Theory of Population and Development ?The power of population is indefinitely greater than the power in the earth to produce subsistence for man.? ? Essay on the Principle of Population, as it Tendency of the affects the Future Improvement of Society actual population (1798) to overwhelm food supply 10 Culture and Development Culture as Means / Ends of Development ? Culture as means to development. Using culture for development because of its considerable importance. ? Culture as ends of development. Culture is development; and development is culture. e.g., Amartya Sen's ?Development as freedom?: Culture is among development's ends and means. Culture as an expression of the ?good life?. 11 Culture & Development Arrow of Causality [a] Culture shapes development. Development Culture Max Weber, Samuel Huntington, Lawrence Harrison, Jeffrey Sachs, et al. [b] Development shapes culture. Development Culture Francis Bacon, Karl Marx, Thorstein Veblen, Erik Reinert, et al. [c] Co-evolution between culture and development Culture Development Richard Nelson, et al. 12 Max Weber The Protestant Ethic and the Spirit of Capitalism (1905) ? In fact, the summum bonum of this ethic, the strict earning of more and more money, combined with the strict avoidance of all spontaneous enjoyment of life, ... is thought of ... purely as an end in itself, ... . Man is dominated by the making of money, by acquisition as the ultimate purpose of his life. Economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs. This reversal of what we should call the natural relationship, so irrational from a naïve point of view, is evidently as definitely a leading principle of capitalism as it is foreign to all peoples not under capitalistic influence. At the same time it expresses a type of feeling which is closely connected with certain religious ideas. ? ? Max Weber (1905) 13 Pope Benedict XVI's Critique of Capitalism ? Confronted with the abuse of economic power, with the cruelty of capitalism that degrades man into merchandise, we have begun to see more clearly the dangers of wealth and we understand in a new way what Jesus intended in warning us about wealth. ? ? Pope Benedict XVI (2007) ? Marxism: right in the concept of ?alienation?; wrong in the absence of God 14 Culture shaping Development ? The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself. ? (Daniel Patrick Moynihan) ? Religion and Progress: Conclusions (Lawrence Harrison 2006) 1. Protestantism has been far more conducive to modernization than Catholicism, above all in the Western Hemisphere. 2. The Nordic countries are the champions of progress. 3. Confucianism has been far more conducive to modernization than Islam, Buddhism, or Hinduism. 15 Religion and Progress: Conclusions 4. The most advanced Orthodox Christian country, Greece, was the poorest of the European Union members prior to the 2004 accessions. There are some parallels between the Orthodox Christian and Catholic countries. But there are also some apparent residues in Orthodox countries from the Communist experience. 5. Islam has fallen far behind the Western religions and Confucianism in virtually all respects. There are significant differences between Arab and non- Arab Islamic countries. 6. Hindu India?s democratic institutions have held up well, and it has experienced rapid economic growth during the past two decades. But it has been very slow to educate its people, particularly its women, and it does poorly in the Corruption Perceptions Index. 7. It is difficult to generalize about Buddhism because of its extreme diversity, but the data suggest that it is not a powerful force for modernization. 16 ?Asian Values? Context, Content, Critique CONTEXT CONTENT CRITIQUE ??East Asian Miracle?: ? An Asian thing ?Conceptually false rapid growth with ?Diversity of cultures, ? A culturally- equity thru state traditions, religions, and based given intervention histories in Asia that cannot be ?HPAEs, NICs wished away ?Politically suspicious ?Proponents: former ?Justification for 1. Acceptance of leaders of (semi)- authoritarianism hierarchy and authoritarian regimes the need for social harmony ? Mahathir ?Economically bad Mohamad 2. Respect and (Malaysia) ?Resulted in the 1997 reverence for Asia economic crisis ? Lee Kuan Yew family (Singapore) 3. Benevolence in ? Li Peng (China) government 17 Culture shaping Development ?The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.? ? Daniel Patrick Moynihan 18 Mode of production molds people. ? There is a startling difference between the life of men in the most civilised provinces of Europe, and in the wildest and most barbarous districts of New India. This difference comes not from the soil, not from climate, not from race, but from the arts. ? ? Francis Bacon (1620) ? [I]t may be said that institutions are of the nature of prevalent habits of thought, and that therefore the force which shapes institutions is the force or forces which shape the habits of thought prevalent in the community. But habits of thought are the outcome of the habits of life. Whether it is intentionally directed to the education of the individual or not, the discipline of daily life acts to alter or reinforce the received habits of thought, and so acts to alter or fortify the received institutions under which men live. And the direction in which, on the whole, the alteration proceeds is conditioned by the trend of the discipline of daily life. ? ? Thorstein Veblen (1961) 19 Co-evolution Culture & Development Strategies ? Aalborg School: ?learning economy? ? tacit knowledge (Bengt-Åke Lundvall, et al.) National Systems of Innovation Culture embodies ?tacit knowledge?. ?tacit knowledge?: ?know-how? (skills) embedded in culture ? difficult to transmit, cannot be codified, or written down ? Culture as source of ?Competitive Advantage? (Michael Porter, et al.) Globalisation: allows sourcing from anywhere ?Economic culture?: hard-to-imitate competitive advantage (a niche market) Cultural differences give rise to distinctive product and services (international specialisation) 20 Race and Development Racism in guise of culture Samuel P. Huntington (2004), ?The Hispanic challenge? Hispanic culture: incompatible with ?Anglo- Protestant values that built the American dream? Latino traits: mistrust of people outside the family; little use for education; acceptance of poverty as a virtue necessary for entrance into heaven; ?mañana syndrome? History of Colonialism ? Indolence of the Filipinos (Jose Rizal 1890) ? ?White Man?s Bu yardrden (Rud? Kipling 1899) ? The Wretched of the Earth (Frantz Fanon 1961) ? Myth of the Lazy Native: A Study of the Image of the Malays, Filipinos, and Javanese from the 16th to the 20th Century and Its Function in the Ideology of Colonial Capitalism (Syed Hussein Alatas 1977) ? Orientalism (Edward Said 1978) 21 Alexander Hamilton's Account of the Philippine Colony under the Spaniards (1727) *Thanks to Erik Reinert for the exposure to the Goldsmiths?-Kress Library of Economic Literature (University of London and Harvard University). 22 Colonialism as Primitive Accumulation ?The colonial system ripened, like a hot- house, trade and navigation.... The colonies secured a market for the budding manufactures, and, through the monopoly of the market, an increased accumulation. The treasures captured outside Europe by undisguised looting, enslavement, and murder, floated back to the mother- country and were there turned into capital.? ? Karl Marx (1867) 23 The ?Imperial Factor? ?The empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists.? ? Cecil Rhodes (1895) ? We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labor that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories. ? *Thanks to Jacques Hersh. 24 Technological Revolutions and Development Approximate dates of the installation and deployment periods of the great surges of development -- 1771 to the present GREAT Technological Turning INSTALLATION DEPLOYMENT SURGE Revolution Point Core country IRRUPTION FRENZY SYNERGY MATURITY The Industrial st Revolution 1793?97 1771 1770s and early 1780s late 1780s early 1790s 1798?1812 1813?1829 1 Britain Age of Steam and Railways nd 1848?50 1829 1830s 1840s 1850?1857 1857?1873 2 Britain (spreading to continent and US) Age of Steel, Electricity and Heavy Engineering rd 1893?95 1875 1875?1884 1884?1893 1895?1907 1908?1918* 3 USA and Germany overtaking Britain 1929?33 Age of Oil, Automobiles Europe th and Mass Production 1908?1920* 1920?1929 1943?1959 1960?1974* 1908 4 1929?43 USA (spreading to Europe) USA Age of Information and Telecomunications th 2001??? 1971 1987?2001 20?? 1971?1987* 5 USA (spreading to Europe and Asia) Institutional Crash big-bang recomposition Thanks to Carlota Perez for this slide. Note: * Observe phase overlaps between successive surges. 25 A PANORAMA OF THE CHANGING CONTEXT OF THE TWENTIETH CENTURY The Age of Steel The Age of Information Technology and Heavy Engineering and Global Telecommunications The Age of Oil, Automobiles and Mass Production Redeployment Breakdown EUROPE 1960-74 to Third World; of Soviet system World MATURITY War I ,Social unrest Brasil, Korea EUROPE Viet Nam war ?miracles? The Belle 1943-59 Époque Stagflation Post war Golden Age Rejuvenation of US & Cold War mass production Progressive industries SYNERGY Era the roaring Roaring Twenties Twenties 1987-2001 1920-29 1971-87 1908-1920 IRRUPTION IRRUPTION FRENZY Early development Early FRENZY ICT Mass production Transistors; computers; development (USA) analog instruments; oil and numerical control automobiles ??? Bretton Woods Crash 1971 Collapses Asia 1908 Welfare State Intel 1929 Nasdaq; Ford Model-T Marshall Plan Micro-processor draining of stock markets Thanks to Carlota Perez for this slide. 26 1900 1900 1930?s Depression and WWII 1930s 1930s 2000 C 2000Coorporate scandals Recession?rporate scandals Recession? The Global Political Economy of Development, 1960s - 2011 (General Characteristics ?(? National Developmentalism Washington Consensus Post-Washington Consensus 1960s 1980s - mid-1990s mid-1990s - present (National Development) (Open Market Economy) (Global Competitiveness) [post-WWII, Keynesianism, Golden Age] [Structural Adjustment Programmes: [Deep institutional reforms; policies on privatisation, liberalisation, deregulaiton] labour market ?flexibility? and ?human capital? ] POLITICAL HISTORICAL State-led development and its crisis First wave neoliberal offensive ?Second generation? reforms focus on TRAJECTORY institutional reform INDUSTRIAL RELATIONS State-controlled authoritarian systems Deregulation, low wage assembly and Labour flexibility and high productivity AND LABOUR MARKET export zones CONDITIONS POVERTY AND SOCIAL Selective state action Market (trickle-down) effects Accumulation of human capital INEQUALITY CAPITAL AND Control FDI Remove controls Attract investment through creation of CURRENCY MOVEMENTS attractive climate INDUSTRIAL Protect local investment Remove protection and privatise Create globally competitive industries; TRANSFORMATION allow exit and entry REGIONAL Cooperative developmentalism Free trade and open borders Meta-governance to promote INTEGRATION competitiveness THE DEVELOPMENT OF State-dominated participation Individual civil rights; rule of law Good governance and independent civil CIVIL SOCIETY society (?social capital?) ENVIRONMENTAL Disregard for environmental concerns Measures to limit market-driven Sustainability as a principal objective EFFECTS AND environmental degradation REGULATION TECHNO-ECONOMIC ?Maturity? of the mass production paradigm ?Installation? period of the Information and ?Turning point? of ICT paradigm PARADIGM Communications Technology (ICT) *Thanks to Professor Paul Cammack, Manchester Metropolitan University, UK. 27 *Thanks to Paul Cammack for this matrix. NEOLIBERALISM WAS BORN OUT OF CRISES Complex interaction of forces/events/phenomena... ...Mutually reinforcing tendencies ? recession in the developed capitalist economies after 1973, the OPEC oil crisis, and the collapse of the Bretton Woods system ? de-linking from the ?gold standard? ? internationalisation of financial markets as a result of the widespread abandonment of exchange controls ? the massive increase in foreign bank lending to the Third World as consequence of the recession in the major economies ? the growing stagnation of command economies ? the shift from import substitution in favour of export promotion in the Third World and the rise of the NICs in East Asia ? the imposition of structural adjustment programmes (SAPs) on the heavily-indebted Third World as conditionality attached to rolling over foreign debt ? the restructuring of global production towards ?post-Fordism? and the growth of MNCs? ? the revolution in macroeconomic policy that resulted in the weakening of trade unions, the cutting of state budgets, deregulation, privatisation, etc. ? the advances in ICT (as the new ?techno-economic paradigm?)? ? Etc.... 28 NEOLIBERALISM HAS EVOLVED THROUGH CRISES From crisis to crisis in the last 40 years.... ? National Developmentalism (postwar-1970s) ? Crisis of Fordism/Keynesianism (stagflation) st ? Washington Consensus ? 1 Generation Neoliberal reforms (1980s ? mid-1990s) ? Crisis of market fundamentalism of the Washington Consensus ? ?East Asian Miracle? (8 HPAEs showing high growth and high equity with state intervention) nd ? Post-Washington Consensus ? 2 Generation reforms (mid-1990s - 2010) ? Multiple crises: financial crises, overaccumulation, overproduction, over-/under- consumption, climate change, ecological degradation, political legitimacy, global governance crisis, oil crisis, food price crisis, subprime crisis 29 National Developmentalism: post-World War II - 1960s ? Keynesian economic policy ? Active role of government in the economy (full employment; monetary policy, etc.) ? ?populist? import-substituting development (Latin America) ? ? ?developmental state? (East Asia)? ? ?Golden Age? (1950-1973): productivity & real wage in harmony ? Fordism: mass production ? mass consumption paradigm 30 Crises of the 1970s gave way to Neoliberal globalisation Crisis of gave way to ?national Global Neoliberalism developmentalism? 31 From Statism to Market Fundamentalism Ma ?rch into Socialism (1949) ? March into Neoliberalism (1980s-2011) (state ?-led) ? (market-led) 1. state-managed stabilization policies 1. internationally-managed restructuring 2. principle of redistributive taxation 2. fiscal reforms that encourage entrepreneurship 3. price regulation 3. deregulation of prices 4. public control over the labour and the 4. labour and market affairs have been money market left to the market forces 5. public enterprises that satisfy wants 5. 'the sphere of wants' is a task to be satisfied by the market 6. all types of social security legislation 6. restructuring of social security legislation to work for the market *Socialism is understood ?as that organization of society in which the means of production are controlled, and the decisions on how and what to produce and on who is to get what, are made by public authority instead of by privately- owned and privately-managed firms? (Joseph Schumpeter 1949). 32 Neoliberal Policies: 10 Reforms [Washington Consensus: SAPs] (John Williamson: for Latin America [?not all countries?] as of 1989 [?not at all times?]) 1. Fiscal Discipline 2. Reordering Public Expenditure Priorities 3. Tax Reform 4. Liberalizing Interest Rates 5. A Competitive Exchange Rate 6. Trade Liberalization 7. Liberalization of Inward FDI 8. Privatization 9. Deregulation 10. Property Rights 33 East Asian growth amidst global crises.... Growth Rate GDP Per Capita of World Selected Regions Regional Average Selected Period between Years 1000 - 2001 (Annual Average compound Growth Rate) Africa Asia (Japan excluded) Latin America World 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 1000-1500 1500-1820 1820-1870 1870-1913 1913-1950 1950-1973 1973-2001 Source: original data extracted from Angus Maddison, The World Economy, Historical Statistics, OECD, Paris, 2003, p. 263 34 Development Paradigm: State vs Market NEOLIBERALISM DEVELOPMENTAL STATE (Washington Consensus, 1980s-present) (East Asian Miracle, 1965-1990) INDUSTRIAL POLICY MARKET-LED DEVELOPMENT Industrial Policy and active role of state in Privatization, Liberalization, Deregulation, Open development Market Economy, Competitiveness High growth, high equity with state intervention (8 High Performing Asian Economies - HPAEs) 35 Two Periods of Neoliberalism Not simply ?state vs market?, but different in focus and goals Washington Consensus Post-Washington Consensus (1980s - mid-1995)? (mid-1995 - 2011) ? Limited macroeconomic broader, more extensive and Scope: Scope: policies intrusive policies ?open market economy? ?global competitiveness? Goal: G oal: ?shock? tactics; ?sound ?deep? institutional and Approach: Approach: macroeconomic principles? behavioural change ? ?flexible? labour, ?human capital? ? SAPs (privatization, deregulation, liberalization, etc.) ? ? ?social capital?: non-market responses to market imperfections ? Rollback of the state 36 Social Capital: the missing link in development? cial Capital refers to ?trust, norms and Robert Putnam So: networks that can improve the efficiency of society by facilitating coordinated actions? (or simply, 'connections?) cial Capital Implementation Framework World Bank So: (SCIF) Social Capital: 'norms and networks that enable collective action' 5 KEY DIMENSIONS OF SOCIAL CAPITAL 1. Groups and networks (to promote and protect personal relationships) 2. Trust and Solidarity (to foster cohesion and collective action) 3. Collective Action and Cooperation (to resolve communal issues) 4. Social Cohesion and Inclusion (to mitigate risk of conflict thru participation) 5. Information and Communication (to improve access to information) 37 Social Capital: The Missing Link in Capitalist Development? ?Analytically, (social capital) allows for market imperfections and for these to be understood as inducing non-market responses. Policy-wise, discretionary intervention is justified and its scope extended. Rhetorically, both the state ? but especially the social other than the state, trade unions, and traditional politics ? are more warmly received. And, intellectually, the social and its theorists are taken seriously by economists World Bank: Sources of Social Capital without questioning their economics.? - families, communities, firms, civil ? Ben Fine (2001) society, public sector, ethnicity, gender 38 World Bank?s Evolving Development Framework: From a Development Bank to a ?Knowledge Bank? Structural Adjustment Programs Comprehensive Development Framework (CDF, 1998) (SAPs, 1980s - mid-1990s) Poverty Reduction Strategy Papers (PRSPs) Robert McNamara (1968-1981) Wolfensohn - Stiglitz Project ?Conditionality? ? Privatization ? Liberalization ? Deregulation 1. Development strategies should be comprehensive and shaped by a long-term John Williamson (1989) vision. ?Washington Consensus? 2. Each country should devise and direct its 1. Fiscal discipline own development agenda based on citizen 2. Redirect spending priorities from things like participation indiscriminate subsidies to basic health and education 3. Lower marginal tax rates and broaden the tax base 3. Governments, donors, civil society, the 4. Interest rate liberalization private sector and other stakeholders 5. A competitive exchange rate should work together in partnership led by 6. Trade liberalization recipient countries to carry out development 7. Liberalization of FDI inflows. strategies. 8. Privatization 9. Deregulation, in the sense of abolishing barriers to entry and exit 4. Development performance should be 10. Secure property rights. evaluated on the basis of measurable results. 39 Multilateral Development Banks (MDBs) and International Financial Institutions (IFIs) Attacking, Reducing, Fighting Poverty Across Regions and Continents FUNCTION: financial support and policy advice for developing countries ACTIVITIES: lending through borrowing from international capital markets MEMBERSHIP: borrowing developing countries and developed donor countries (not exclusive to region) FINANCING FOR DEVELOPMENT: long- and very long- term loans; grants; technical assistance; advisory services; project preparation ?African Development Bank (AfDB) ?Asian Development Bank (ADB) ?European Bank for Reconstruction and Development (EBRD) ?European Investment Bank (EIB) ?Inter-American Development Bank (IDB) ?International Monetary Fund (IMF) ?The World Bank Group 40 From WID to GAD: Women in Development & Gender and Development Women in Development (WID) Gender and Development ? Objective: need to integrate women into the ?Gender relations do not operate in a social development process as active agents vacuum but are products of the ways in which institutions are organized and ? Origin: ?liberal feminism? (1970s) reconstituted.? ? A reaction to women being seen as passive ? Kabeer and Subrahmanian (1996) beneficiaries of development ? Focus: socially constructed basis of ? Problem: difference between men and women ? Oversight of women in policy-making ? Exclusion of women from the market sphere ? ?Real? Problem: imbalance between men ? Productive contribution was visible, but and women reproductive role downplayed ? Objective: need to challenge existing gender roles, divisions of labour, and power relations ? WID Programs: women?s practical needs; employment and livelihood opportunities; ? Origin: frustration with WID in changing access to credit and education; affirmative women?s lives and influencing policy actions in policies; etc. ? There is often a slippage between GAD policy rhetoric and a WID reality where ?gender? is mistakenly interpreted as ?women?. ? (Hazel Reeves and Sally Baden 2000) 41 Education and Development Health and Development Education and Development Health and Development ? World Bank: ? World Health Organization (WHO): ? ?Education is central to development.? health as ?absence of illness? ? ?It empowers people and strengthens nations.? ? ?Better health is central to human happiness ? ?It is a powerful ?equalizer?, opening doors to and well-being.? all to lift themselves out of poverty.? ? ?Investment in education benefits the ? Concern: impact of better health on individual, society, and the world.? development and poverty reduction; and also, ? ?[I]t is fundamental for the construction of the impact of development policies on the democratic societies.? achievement of health goals ?While it is vital to improve aid ?Historically, progress in health procedures to get more aid flowing owed much to adequate food and for health, this is not the only public-health interventions, and important issue: continuously those important relationships persist overlooked are problems with the in the modern world.... whole development model.? Good health improves the capacity ? Rick Rowden (2011) to learn and work....? The Deadly Ideas of Neoliberalism: How the IMF has undermined public health and ? Michael Spence (2009) the fight against AIDS (2009) Health and Growth 42 Good governance for development Governance matters! (World Bank and IMF) 43 Institutions for development ?We have initial perceptions of what reality constitutes. Those perceptions in turn lead to the construction of a set of beliefs, ideologies to explain that reality and explain the way we should behave. That in turn leads to the creation of an institutional structure, or an institutional matrix, which then shapes our world. And as our beliefs about that reality incrementally change we enact policies that incrementally modify that institutional structure. An incremental change is always constrained by path dependence. That is, the existing institutions always constrain our choices. As we make those choices which are incrementally altering policy, we are changing reality. And in changing reality, we are changing in turn the belief system that we have. That circular flow has gone on ever since human beings began to try to shape their destiny.? ? Douglass North (1999), Understanding the Process of Economic Change 44 Resource Curse and the ?Dutch Disease? ?Dutch Disease? Resource Curse ? ?paradox of plenty? ? De-industrialisation ? Resource-richness as curse rather than ? Natural resource abundance crowding blessing out other productive sectors in ? Conflict, underdevelopment, inefficiency manufacturing, agriculture, and services 45 Poverty Traps and Development Paul Collier (2007), The Bottom Billion: Why 4 Poverty Traps the Poorest Countries Are Failing and Why the poorest countries are failing? What Can Be Done About It 1. Conflict (civil war) 2. Natural resource (?Dutch Disease?) 3. Landlocked (with bad neighbours) 4. Bad governance (in small country) 4 Approaches What can be done about it? 1. Aid (concentrated, only in most difficult environment like landlocked) 2. Military intervention (external and calibrated) ? 1998-2003: Director, Development Research Group, 3. International laws and charters World Bank (transparency of wealth revenues) ? Presently: Professor of Economics and Director of the 4. Trade policy (preferential to the Centre for the Study of African Economies, Oxford bottom billion) University, UK 46 Aid and Development s aid) ? 1960-1970: UN ?Development Decade (0.7% of GDP a? ? 1971-1980: Second Development Decade ? 1981-1990: Third Development Decade (lost decade) ial crises) ? 1991-2000: Fourth UN Development Decade (financ ? No Fifth Development Decade (Millenium Declaration) ? In recognition of the special importance of the role which can be fulfilled only by official development assistance, a major part of financial resource transfers to the developing countries should be provided in the form of official development assistance. Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7 per cent of its gross national product at market prices by the middle of the Decade. ? ? International Development Strategy for the Second United Nations Development Decade, UN General Assembly Resolution 2626 (XXV), 24 October 1970 To those peoples in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves.... John F. Kennedy, 20 January 1961 47 Resource Flows: from poor to rich ? Negative Net Transfers of Resources during the Four Development Decades Negative Net Transfers of Resources Prevail ? Private flows have become dominant (private aid and 200 investment flows) 100 ? Development Decade 0 declaration: -100 ? 1.0 % of developed country -200 GDP to achieve 5.0% GDP Developing economies in developing countries -300 Africa ? 0.3 % private flows -400 Eastern and Southern Asia ? 0.7 % ODA -500 Latin America ? Resource flows no longer -600 subject to development needs, but to private incentives *Thanks to Jan Kregel. 48 $ Billions 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 PARIS DECLARATION on Aid Effectiveness (2005) Five Fundamental Principles 1. Ownership: Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption. 2. Alignment: Donor countries align behind these objectives and use local systems. 3. Harmonisation: Donor countries coordinate, simplify procedures and share information to avoid duplication. 4. Results: Developing countries and donors shift focus to development results and results get measured. 5. Mutual accountability: Donors and partners are accountable for development results. 49 AAA: Accra Agenda for Action (2008) Proposed Areas for Improvement ? Ownership: Countries have more say over their development processes through wider participation in development policy formulation, stronger leadership on aid co-ordination and more use of country systems for aid delivery. ? Inclusive partnerships: All partners - including donors in the OECD Development Assistance Committee and developing countries, as well as other donors, foundations and civil society - participate fully. ? Delivering results: Aid is focused on real and measurable impact on development. ? Capacity development: To build the ability of countries to manage their own future. 50 The White Man?s Burden: Why the West?s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (William Easterly 2006) Problem: Planners over Searchers Solution: Searchers over Planners ? In foreign aid, Planners announce good intentions but don't motivate anyone to carry them out; Searchers find things that work and get some reward. Planners raise expectations but take no responsibility for meeting them; Searchers accept responsibility for their actions. Planners determine what to supply; ? Remember, aid cannot achieve Searchers find out what is in demand. Planners apply global blueprints; the end of poverty. Searchers adapt to local conditions. Only homegrown development Planners at the top lack knowledge of the bottom; base on the dynamism of Searchers find out what the reality is at the bottom. individuals and firms in free Planners never hear whether the planned got what it needed; markets can do that. ? Searchers find out whether the customer is ? William Easterly (2006) satisfied. ? 51 Millenium Development Goals ??A world that is not advancing toward the Millennium Development Goals ? a world mired in the deprivation of hunger, the prevalence of disease and the despair of poverty ? will not be a world at peace.? ? Kofi Annan (2003) Former UN Secretary-General ? Millennium Development Goals (MDGs) ? Monterrey Consensus (financing for development) ? Various official development assistance (ODAs) 52 ?Employment? added to the MDGs 2005 WORLD SUMMIT OUTCOME (Resolution adopted by the UN General Assembly) Employment 47. We strongly support fair globalization and resolve to make the goals of full and productive employment and decent work for all, including for women and young people, a central objective of our relevant national and international policies as well as our national development strategies, including poverty reduction strategies, as part of our efforts to achieve the Millennium Development Goals. These measures should also encompass the elimination of the worst forms of child labour, as defined in International Labour Organization Convention No. 182, and forced labour. We also resolve to ensure full respect for the fundamental principles and rights at work. *Thanks to Jan Kregel for reminding me of this point. 53 Poverty Reduction Programmes Microfinance Conditional Cash Employment Guarantee Transfers (CCT) Scheme Credit for the poor without access to formal finance Cash grants to the poorest of market... the poor on condition that they meet specific ?Microcredit is not a miracle cure Guaranteed, temporary rural commitments (e.g., send that can eliminate poverty in employment for the poor at a children to school; regular one fell swoop. But it can end minimum wage for able and health check-up) poverty for many and reduce its willing workers severity for others. Combined with other innovative ? Progresa (Mexico) ? NREGS: Mahatma Gandhi programmes that unleash ? Bolsa Familia (Brasil) National Rural Employment people?s potential, microcredit Guarantee Scheme (India) ? 4Ps: Pantawid Pamilyang is an essential tool in our Pilipino Program search for a poverty-free world.? ? Maharashtra EGS (1970s) (Philippines) ? Mohammed Yunus (2003) 54 Geography, Climate, Disease School of Development ? The basic variables are as expected ? economic policy affects growth rates, temperate/snow zone economies grow faster than tropical countries, regions with falciparum malaria grow less rapidly than regions without the disease, and landlocked countries grow more slowly than countries with a coastline. ? ? Jeffrey Sachs (2000) 55 ?Mode of Production? and Development It is ?the mode of production? which shapes development, institutions and culture. ? Erik Reinert ? Focus on PRODUCTION (wealth creation) ? before distribution (wealth allocation) ? Economic development is ac omic structure matters!)tivity-spec (Econific. ? Manufacturing is a mandatory passage point to development. 56 ?Alternative? Development Alternatives ?from below?: from labour, fighting identities, civil society, social movements, and global justice movements ?Only?after?the?last?tree?has?been?cut?down, RECLAIM THE COMMONS Only?after?the?last?river?has?been?poisoned, ? [L]ife-giving resources of our Earth and human societies should not be privatized or Only?after?the?last?fish?has?been?caught, commodified because of the enormous harms Only?then?will?you?find?that and inequalities that result. money?cannot?be?eaten.? As more citizens discover this reality, a new vision of society is arising - one that honors human ? Cree Indian Prophecy rights, democratic participation, inclusion and cooperation. People are discovering that alternatives and commons-based approaches offer practical solutions for protecting water and rivers, agricultural soils, seeds, knowledge, sciences, forest, oceans, wind, money, communication and online collaborations, culture, music and other arts, open technologies, free software, public services of education, health or sanitization, biodiversity and the wisdom of traditional knowledges. ? 57 History of Development Thought & History of Development Policy ? A Fundamental Development Question How rich countries got rich? Why poor countries stay poor? How will poor countries and all of humanity realize a ?good life?? Why, in spite of being just as productive / efficient / hardworking as their First World counterparts, people in the Third World are so much poorer? ? History: the only laboratory in development studies, economics, and the social 500 years of development history) sciences ( ? History of Development THOUGHT: what theorists said must happen ? History of Development POLICY: what policies were/are actually followed 58 Why Africa is ?a rich continent of poor people?? 59 Why Africa is lagging behind? 60 Why China is forging ahead? 61 Why are there so few middle income nations? South Korea - Somalia, GDP per Capita 1950-2001 Korea (Rep.) Somalia 16000 14000 12000 10000 8000 6000 4000 2000 0 Source: original data extracted from Angus Maddison, OECD, Paris, 2003 (from Erik Reinert?s Presentation) 62 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2001 On the power of political-economic ideas.... ? [T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, wh ?ich are dangerous for good or evil. ? John Maynard Keynes (1936) -Concluding notes in The General Theory of Employment, Interest and Money 63 Paul Samuelson?s Family Tree of Economics 64 David Ricardo Theory of Comparative Advantage in International Trade ?SPECIALIZATION? ? 2 x 2 model (2 economies, 2 goods) ? Labor theory of value (bartering of labour hours) ? No transport costs ? Identical traded goods ? Perfectly mobile factors of production ? No tariffs or other trade barriers Principles of Political Economy and Taxation ? Perfect knowledge (1817) 65 Two Types of Economic Theory MAINSTREAM CANON THE OTHER CANON FUNDAMENTAL (Standard Textbook (Renaissance / Reality DIFFERENCE Economics) Economics) Origin of Wealth Material sources: from nature Immaterial sources: from (land, physical labour, capital) culture (Man?s creativity and morality) PHYSIOCRACY ANTI-PHYSIOCRACY Focus of Analysis Man the Trader and Consumer Man the Creative Producer EXCHANGE PRODUCTION Unit of Analysis Atomistic; Mechanical analysis Holistic; Synthesis analysis INDIVIDUAL COMMON WEAL 66 See The Circular Flow of Economics The real economy Financial/money economy ?Black Box? Production of goods Money/capital and services 67 Mode of production molds people.... ? There is a startling difference between the life of men in the most civilised provinces of Europe, and in the wildest and most barbarous districts of New India. This difference comes not from the soil, not from climate, not from race, but from the arts. ? ? Francis Bacon (1620) 68 Qualitative difference in economic activities Diminishing returns Increasing returns ?Production ?Costs ?Returns ?Production ?Costs ?Returns 69 Qualitative difference between ?Agriculture? and ?Manufacturing? (some stylised facts/ideal types) MANUFACTURING AGRICULTURE an increasing returns activity a diminishing returns activity ? Novelty (innovation and technological change) ? Few windows of opportunity for innovation (until very recently) ? Diversity (heterogeneity ? large division of labour) ? Very little division of labour ? Increased population a necessity in order to ? Increased population a problem because of create markets for manufactures diminishing returns ? Scale (increasing returns) ? Diminishing returns ? Dynamic imperfect competition ? Perfect competition (commodity competition) ? Synergy (manufacturing-agriculture-services) ? Few synergies ? Technological change leads to a ?Fordist wage ? Technological change leads mainly to lower regime? (high wages, high profits, high tax prices in the consuming country base) ? Generally creates a feudal class relations. ? Creates a middle class and conditions for democracy 70 There are countries that specialize in being poor; and there are countries that specialize in being rich! Which economic activity will contribute better to economic growth, productivity explosions, ??? technological innovation, employment 71 Adam Smith: Invisible Hand, Nature and Providence in Development ? The rich ... are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants... When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for. ? ? Adam Smith (1759) A Theory of Moral Sentiments 72 Karl Marx: Mode of Production (Industry) in Development ? The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilization. ? ? Karl Marx and Friedrich Engels (1848) The Communist Manifesto ? Nature builds no machines, no locomotives, railways, electric telegraphs, self-acting mules etc. These are products of human industry; natural material transformed into organs of the human will over nature, or of human participation in nature. They are organs of the human brain, created by the human hand; the power of knowledge objectified. ? ? Karl Marx (1858) The Grundrisse: Critique of Political Economy 73 Cumulative Causation in the history of the wealth of nations Antonio Serra (1613), Breve trattato delle cause che possono far abbondare li regni d'oro, argento dove non sono miniere. Con applicazione al Regno di Napoli Naples: raw materials (poverty) Venice: manufacturing (wealth) Most important causes of the wealth of nations 1. quantity of industry (increasing returns) 2. the quality of the population (People of rich Genoa, Florence, and Venice were ?by nature industrious, or diligent and prone to inventions, and on the watch for opportunities to apply their industry and build up trade not only in their own country but in others.?) A Brief Treatise on the Causes that can make Gold and Silver plentiful in Kingdoms where there are no 3. the extension of trading operations Mines (1613) (import raw materials, export manufactured goods) Antonio Serra was ?the first to compose a scientific treatise...on Economic Principles and Policy? 4. the regulations of the sovereign (common good) (Joseph Schumpeter 1954) 74 Manufacturing as the real gold mine ? [S]uch is the power of industry that no mine of silver or gold in New Spain or Peru can compare with it, and the duties from the merchandise of Milan are worth more to the Catholic King than the mines of Potosí and Jalisco. Italy is a country in which there is no important gold or silver mine, and so is France: yet both countries are rich in money and treasure thanks to industry. ? ? Giovanni Botero (1588) Ragion di Stato 75 Britain?s 1721 Industrial Development Strategy: Export manufactured goods, Import raw materials Robert Walpole, through the King?s address to Parliament, on 1721 legislation: ? [I]t is evident that nothing so much contributes to promote the public well-being as the exportation of manufactured goods and the importation of foreign raw material.? Sir Robert Walpole (1676-1745), Britain?s First Prime Minister 76 Industrial Policy, Infant Industry Protection/Creation in 1721 British Legislation ? Import duties on raw materials used for manufactures were lowered or dropped. 1. Duty drawbacks on imported raw materials for exported manufactures were increased. 2. Export duties on most manufactures were abolished. 3. Duties on imported foreign manufactured goods were raised. 4. Export subsidies (bounties) were extended to new export items, while the existing export subsidies were increased. 5. Regulation was introduced to control the quality of manufactured products. 77 Trade Policy: Protectionism ? All of today?s rich countries, except for the Netherlands and (pre-WWI) Switzerland, used protectionism for substantial periods. ? Britain and USA were the most protectionist economies in the th th world in their respective catch-up periods (18 to mid-19 th th centuries for Britain; mid-19 to mid-20 century for the USA). ? Germany, France, and Japan ? the supposed homes of protectionism ? were much less protectionist than Britain or the US. *Thanks to Ha-Joon Chang for this slide. 78 Average Tariff Rates on Manufactured Products for Selected Developed Countries in Their Early Stages of Development Average Tariff1 Rates 1 (weighted average; in percentages of value) 2 2 1820 1875 1913 1925 1931 1950 3 Austria R 15-20 18 16 24 18 4 Belgium 6-8 9-10 9 15 14 11 5 Canada 5 15 n.a. 23 28 17 Denmark 25-35 15-20 14 10 n.a. 3 France R 12-15 20 21 30 18 6 Germany 8-12 4-6 13 20 21 26 Italy n.a. 8-10 18 22 46 25 7 Japan R 5 30 n.a. n.a. n.a. 4 Netherlands 6-8 3-5 4 6 n.a. 11 Russia R 15-20 84 R R R Spain R 15-20 41 41 63 n.a. Sweden R 3-5 20 16 21 9 Switzerland 8-12 4-6 9 14 19 n.a. United Kingdom 45-55 0 0 5 n.a. 23 United States 35-45 40-50 44 37 48 14 79 *Thanks to Ha-Joon Chang for this slide. Protectionism in Britain and France, 1821-1913 (measured by net customs revenue as a percentage of net import values) Years Britain France 1821-1825 53.1 20.3 1826-1830 47.2 22.6 1831-1835 40.5 21.5 1836-1840 30.9 18.0 1841-1845 32.2 17.9 1846-1850 25.3 17.2 1851-1855 19.5 13.2 1856-1860 15.0 10.0 1861-1865 11.5 5.9 1866-1870 8.9 3.8 1871-1875 6.7 5.3 1876-1880 6.1 6.6 1881-1885 5.9 7.5 1886-1890 6.1 8.3 1891-1895 5.5 10.6 1896-1900 5.3 10.2 1901-1905 7.0 8.8 1906-1910 5.9 8.0 1911-1913 5.4 8.8 Source: Nye (1991), p. 26. Thanks to Ha-Joon Chang for this slide. 80 Adam Smith American maxim of the 1820s ? Don?t do as the English TELL you to do ... ? Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness. ? ? Adam Smith (1776) The Wealth of Nations 81 ...Do as the English ! ? DID ?For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, Gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.? ? Ulysses S. Grant President of the USA, 1868-76 ....cited in Andre Gunder Frank (1967), Capitalism and Underdevelopment in Latin America, New York, Monthly Review Press, p. 164. 82 Third World?s maxim for today ?Don?t do as the Americans tell you to do, do as the Americans did!? US politicians whose economic strategies won?t be accepted by Washington Institutions! Thanks to Erik Reinert for the idea. 83 Colonialism as a Technology/Trade/Development Policy ? That all Negroes shall be prohibited from weaving either Linnen or Woollen, or spinning or combing of Wooll, or working at any Manufacture of Iron, further than making it into Pig or Bar iron: That they be also prohibited from manufacturing of Hats, Stockings, or Leather of any Kind... Indeed, if they set up Manufactures, and the Government afterwards shall be under a Necessity of stopping their Progress, we must not expect that it will be done with the same Ease that now it may. ? ? Joshua Gee (1729) Trade and Navigation of Great Britain Considered 84 EU to trade aid for raw materials Politiken News in English, 4. Nov 2008 ? Europe needs raw materials for its growing hi-tech industry. The EU Commission wants to use aid as leverage for supplies. ? Günther Verheugen Former EU Commissioner for Enterprise and Industry A single mobile phone requires some 40 different raw materials - some of them particularly rare. ? Many of the raw materials are found in Africa - a continent that thanks to foreign and aid policy has Europe as its most important partner.... ? We must use these instruments to ensure that we have secure access to raw materials ....? 85 The ?Imperial Factor?: Past and Present ? I was in the East End of London (a working- ? We know that oil is the jewel in the class quarter) yesterday and attended a crown of Libyan natural resources, meeting of the unemployed. I listened to the but even in Qaddafi?s time they wild speeches, which were just a cry for were starting from A to Z in terms of ?bread! bread!? and on my way home I pondered over the scene and I became more building infrastructure and other than ever convinced of the importance of things.... imperialism.... My cherished idea is a solution If we can get American companies for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United here on a fairly big scale, which Kingdom from a bloody civil war, we colonial we will try to do everything we statesmen must acquire new lands to settle can to do that, then this will the surplus population, to provide new redound to improve the situation markets for the goods produced in the factories and mines. The Empire, as I have in the United States with respect always said, is a bread and butter to our own jobs. ? question. If you want to avoid civil war, you must become imperialists. ? ? Gene A. Cretz ? US Ambassador to Libya Cecil Rhodes in 1895 (in V.I. Lenin, Imperialism, the Highest Stage of Capitalism ) (The New York Times, 22 Sept 2011) *Thanks to Jacques Hersh. 86 Listian Principles vs Neoclassical Principles in Development NEO-CLASSICAL PRINCIPLES LISTIAN PRINCIPLES 1) Free trade is a goal per se, even 1. A nation first industrialises and is then before the required stage of gradually integrated economically into industrialisation is achieved. (Risk of nations at the same level of lose/lose situation & factor-price development. Symmetrical integration: polarization.) win/win situations. 2. The preconditions for wealth, 2) All economic activities are democracy and political freedom are all qualitatively alike; economic structure the same: a diversified manufacturing does not matter. sector subject to increasing returns. 3) ?There is no such thing as society? 3. Economic welfare is a result of synergy. th (Margaret Thatcher 1987). 13 century Florentine Chancellor Brunetto Latini (1210-1294) explains the wealth of cities as a common weal (?un ben comune?). 87 The United States as the Ideal Type of a Developmental State ? Of course, free trade is the ideal, and the United States will proclaim the true cosmopolitan principles when the time is ripe. This will be when the United States has a hundred million people and the seas are covered with her ships; when American industry attains the greatest perfection, and New York is the greatest commercial emporium and Philadelphia the greatest manufacturing city in the world; and when ?no earthly power can longer resist the American stars.? Then ?our children?s children will proclaim freedom of trade throughout the world, by land and sea. ? ? Joseph Dorfman (around 1830) 88 Kicking away the ladder to development ..... ? It is a very common clever device that when anyone has attained the summit of greatness, he kicks away by which he has climbed up, in order to the ladder deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. ? Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, Friedrich List (1885 [1841]) to preach to other nations the benefits of free trade, The National System of Political Economy and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth. ? 89 Morgenthau Plan vs Marshall Plan To deindustrialize, or to reindustrialize... MARSHALL?PLAN MORGENTHAU?PLAN (De­industrialization?Plan) ?(Re­industrialization?Plan) George?C.?Marshall Henry?Morgenthau,?Jr. US?Secretary?of?State?(1947­1949) Secretary?of?the?US?Treasury Nobel?Peace?Prize?(1953) (1934­1945) 90 Free Trade: Towards Equalisation or Polarisation? Factor?Price?Equalisation World?Income?Polarisation (free?trade?leads?to?convergence?of?prices?and?wages) (Free?trade?leads?to?world?income?polarisation?? convergence?of?rich?countries?towards?wealth?and poor?countries?towards?poverty) US economist Paul Samuelson (Nobel Prize 1970) Swedish economist Gunnar My (Nobel Prize 1974)rda l [with Friedrich August von Hayek] ??for?the?scientific?work?through?which?he?has ??for?their?pioneering?work?in?the?theory?of?money?and developed?static?and?dynamic?economic?theory economic?fluctuations?and?for?their?penetrating and?actively?contributed?to?raising?the?level?of analysis?of?the?interdependence?of?economic,?social analysis?in?economic?science?? and?institutional?phenomena?? 91 Third World?s integration to the World Economy: The Case of Peru Increasing Exports, Falling Wages 100 % 7 75 % 6 50 % 5 25 % White collar wages 4 0 % Blue collar wages 3 Export -25 % 2 -50 % 1 -75 % -100 % 0 1960 1970 1980 1990 2000 92 INTRA-TRADE: Rich-to-Rich, Poor-to-Poor 93 Development Paradigm: State vs Market NEOLIBERALISM DEVELOPMENTAL STATE (Washington Consensus, 1980s-present) (East Asian Miracle, 1965-1990) INDUSTRIAL POLICY MARKET-LED DEVELOPMENT Industrial Policy and active role of state in Privatization, Liberalization, Deregulation, Open development Market Economy, Competitiveness High growth, high equity with state intervention (8 High Performing Asian Economies - HPAEs) 94 Geography-Climate-Disease School vs The Other Canon (Production-based School) ? The basic variables are as expected ? economic policy affects growth rates, temperate/snow zone economies grow faster than tropical countries, regions with falciparum malaria grow less rapidly than regions without the disease, and landlocked countries grow more slowly than countries with a coastline. ? ? Jeffrey Sachs (2000) ? By stressing geography, climate and disease as economic factors, focus is moved away from the massive policy failures of the Washington Consensus during the last decades. We should therefore not be surprised that key proponents of past failed policies ? like Jeffrey Sachs ? are now the key proponents of the theories that bring in this new focus. When the invisible hand fails to deliver growth, economics seems to degenerate into a rather primitive belief that the misery of this world is caused by fate, providence and nature ? geography, climate and disease ? not by mankind. ? ? Erik Reinert (2007) 95 Development Aid and Millenium Development Goals as ?Welfare Colonialism? ? Palliative rather than DEVELOPMENTAL ? Treating symptoms rather than CAUSES of poverty ? Attacking the poor rather than POVERTY ? FINANCING FOR DEVELOPMENT problem ? Neglecting development of the PRODUCTIVE SECTOR and hence the prospects for (RE-)DISTRIBUTION ? Increasing dependence of the poor rather than promoting LONG-TERM STRUCTURAL CHANGE 96 Bad Habits in/for Development Policy... ?Krugmanian?Vice? ?Ricardian?Vice? (theoretical?models?that?explain?the?real?world?better (piling?a?heavy?load?of?strong?policy?recommendations upon?very?shaky?assumptions) than?Ricardo?but?not?applying?them?to?actual economic?policy) 2008 Nobel Prize Classical Ricardian School of Economics ?for?his?analysis?of?trade?pattern?and?location?of economic?activity? ? Economists? trade-off: ? Nobel Lecture Conclusions (8 Dec 2008): ??The?general?reader?will?have?to?make?up?his?mind,?whether?he wants?simple?answers?to?his?questions?or?useful?ones?in ? ceIncreasing?return ?have?been?a?powerful?fors this?as?in?other?economic?matters?he?cannot?have?both.??? shaping?the?world?economy. (Joseph?Schumpeter?1932) ? That?force?may?actually?be?in?decline. ? But?that?decline?itself?is?a?key?to?understanding?much of?what?is?happening?in?the?world?today. 97 Lagging behind, catching up, forging ahead Today?s Geoeconomics of Development China is a Europe is a US is a Wall Technology. Museum. (Wall Street). 98 ?Catching up? with development? *Thanks to Jan Kregel for this slide. 99 Higher Growth in Developing than Developed Countries *Thanks to Jan Kregel for this slide. 100 Shifting Wealth: from Advanced to Developing Economies See: OECD (2010) R
Posted: 10 October 2011

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