Transcript Development
Unit Ten: Development and
Underdevelopment
Dr. Russell Williams
Required Reading:
Cohn, Ch. 10.
Class Discussion Reading:
Robert Hunter Wade, “What Strategies are Viable for
Developing Countries Today? The World Trade Organization
and the Shrinking of Development Space,” Review of
International Political Economy, 10-4 (November 2003), pp.
621-644.
Shaun Breslin, “The ‘China model’ and the global crisis: from
Friedrich List to a Chinese mode of Governance?” International
Affairs, 87:6 (2011), Pp. 1323-1343.
Outline:
1.
2.
3.
4.
5.
Introduction
Trade and Development Strategies: 1945-1982
The Crisis in Development
Orthodox Liberal Development Strategies
Contemporary Alternatives?
1) Introduction:
What is “development”?
Traditional definitions focused on political and
economic paths followed by the North
=“Modernization theory”
Contemporary focus is simply “economic
growth”
Social or ecological concerns?
Post war era assumed South would develop,
however:
Growing gap between rich and poor countries (?)
Few countries have “joined the club”
“Development” involves two concerns:
1) Financial assistance and investment
LDCs “capital poor” – “Heckscher-Ohlin Theory”
Development supported by:
“Official Development Assistance (ODA)”: Money given at below
market interest rate loans (concessional loans) or grants
World Bank Development Assistance: Money given as loans, but
often at better interest rates then LDC’s could get on their own
Problems: Funds are limited and declining
Funds subject to conditions
Problem: WB has to borrow money; therefore its loans must be
commercially viable
Private Lending and FDI
Problems: Bad management = debt crisis
States must be attractive to investors
“Development” involves two concerns:
2) Domestic trade policies and the global trade regime
What strategies promote development?
What strategies are allowed under trade rules?
Under “embedded liberal” system, South pursued a variety of
strategies
Domestic autonomy meant many chose to respond to structural
challenges of resource dependency etc. through protectionism
Under “Orthodox” or “Neoliberal” era, South has less
autonomy:
More reliance on markets . . . .
Failure of alternatives (?)
Role of financial problems (?)
2) Trade and Development Strategies:
(1945 – 1982)
South ambivalent about GATT participation; skeptical of liberal
analysis of free trade and comparative advantage
Instead: “Import Substitution Industrialization (ISI)”
Derived from:
Realist/Mercantilist analyses (List)
“Structuralism,” Dependency theory and Marxism
“Structuralism”?
Highlighted developmental “challenges” facing LDCs that
invalidated liberal analyses
1) Reliance on natural resource exports
= price volatility (!)
“Structuralism”? (cont . . . )
2) “Mono-exporters”: Specialization on one primary export
commodity
E.g.
Coffee = 80% of Burundi’s export earnings (1984)
Cocoa = 75% of Ghana’s export earnings (1984)
Coffee and Cocoa = 69% of Brazil’s export earnings (1950)
= potential “terms of trade shocks” (?)
3) Singer-Prebisch Theory: Resource exporters suffered from
“declining terms of trade”
E.g. As incomes increase:
Demand
for natural resources does not increase . . . . People only need so
much cocoa . . . .
Demand for manufactured goods always increases
Inevitable relative economic decline = LDCs have a harder time
paying for desired manufactured imports
“Structuralism”? (cont . . . )
4) Absence of domestic investment linkages and savings
LDC would not develop away from natural resource industries
because of financial arrangements
MNC profits exported
Low domestic demand discourages local reinvestment
=Problem of subsistence agriculture
Poorly organized financial services industries
Structuralism promoted internal development strategies
Industrialization through tariffs on manufactured imports
Direct state involvement in investment linkages
E.g. State enterprises
National economic planning
=Four distinct types of structuralist economic interventions!
“Easy ISI”:
Replace easily produced imported consumer goods with local
products - E.g. textiles, shoes, etc.
Improves balance of trade
Generates “human capital”
Transfer earnings from export sectors to industrial development
Tended to work fairly well, particularly in larger states
E.g. Brazil
However, gains were short term, states thought development
required progression to more capital intensive goods . . . .
“Secondary ISI”: (“Latin American Approach”)
Replace complex manufactured products with local goods
Requires large investment = debt financing
E.g. Automobiles, appliances etc.
Stimulate “backward linkages” – development of industries providing inputs
Generates “human capital”
Will require export earnings to finance debt
“ISI-Export Substitution”: (“Export Led Growth” –
“East Asian Approach”)
Convert “Easy ISI” producers into export industries
Large role for the state:
Promote correct investments: Tax breaks and incentives for desired
industries
Industrial planning – “Strategic Trade Theory”: Create desired
comparative advantages
Support for free trade, but protectionism for “infant Industries”
Liberalization is staged based on needs of export industries
Socialist strategies ? ? ?
“Nationalization” and “expropriation” of infrastructure
Disengagement form MNC and global trade
More emphasis on “basic needs” development
3) The Crisis in Development:
After 1980 ISI seen as a failure – Problems include:
Competitiveness of ISI economies - Absence of economies of
scale
Financial problems – External debts grew rapidly
“Balance of Payments” crises - Problem for “Secondary ISI”
countries:
Current account:
Machinery imports increase?
Exports do not?
State “competence” (E.g. East Asian “developmental states” vs.
?)
Sources of “official development assistance” begin to decline
and MNC FDI becomes more important
MNC’s not interested in ISI-led development
4) Orthodox/Neoliberal Dev’t
Strategies:
Neoliberalism became dominant development
strategy after 1980s:
Why?
Failure of alternatives (?)
Ideology – Neoliberal “hegemony”
Promoted by KIEO’s and northern states
Interpretations of the “East Asian Model” emphasized its “liberal”
elements - KIEO’s argue that focus on increasing exports and
internal markets is key to development
Neo Imperialism/Neo Colonialism – IMF “Structural Adjustment
Policies” dictate state policy in many southern states
Power – the North
E.g. the WTO single undertaking and development
A “liberal” development strategy:
Remove trade and investment barriers
Increase export earnings through logic of comparative advantage
E.g. focus on resource exports if that is what you are already
competitive in . . .
Reduce budget deficits and cut social expenditures – show
stable, sound economic management
Eliminate state economic subsidies and privatize state owned
industries
Result: Increased access to MNC FDI = capital and technology
necessary to becoming more efficient at what you already export
and necessary to development of new industries
Liberal Economics: Small states have no choice . . . intervention
are inherently inefficient over the long term . . . .
A “liberal” development strategy - Results?
Short term = pretty bad for most countries . . . .
Mexico:
1981 per capita income $3,500
1988 per capita income $3,028
1999 per capita income $3,600
Long term = most states have experienced good growth since 2000
Mexico = 3.0 % annual GDP growth since 1996
However, context of each state is different . . . .
E.g. Many states under IMF SAP’s have not done very well –
particularly “low income” LDC’s . . . .
E.g. Brazil, India and China . . . . All have done well, but . . . .
How orthodox have their strategies been?
Role of large internal markets?
Challenges:
Interpreting the success of this model is very ideologically driven
Domestic politics . . . How do you “sell” decades of pain?
5) Contemporary Alternatives:
If Neoliberalism does not work for your society
what are the alternatives?
Domestic Policies?
“Strategic Trade Theory”, ISI and infant industries . . . .
Problem: Even if “comparative advantage” can be created in
theory, can it be done in practice?
E.g. WTO trade rules
E.g. MNCs and investment rules . . . .
Human capital development
Education and social spending to create a skilled work force
attractive to investors
5) Contemporary Alternatives:
If Neoliberalism does not work for your society what
are the alternatives?
Systemic Reform?
IFI reform that might help poorest states . . . .
Reduced conditionality in development assistance – No more “one size fits all”
More emphasis on internal economic integration
E.g. stop cutbacks that undermine capabilities of “developmental state”
“Basic needs” development – Now promoted by WB
Support for infrastructure etc. that the market will not provide in poor states
Problem: Runs counter to emphasis on economic growth as measure of
development
Debt relief
“Right to Development” = Special treatment in trade regime to allow
“free riding”
For Next Time:
Final Exam:
Saturday, April 12 – 3:00 to 5:00pm (SN2101)
Exam is cumulative – same format as midterm.
Eight short answe concepts and TWO essays.