Transcript Economic Development

Economic Development
Dependency Theory, The Economic
Nationalist Response, and the
Problem of Debt
Theory-based Terms: The words
contain the theory
• Liberal Theory
– Developing countries
– Less Developed Countries
– Emerging markets
• Dependency theory
• Underdeveloped Countries
• Neutral?
– The “South”
What is economic development?
• Overall growth?
• Emphasis on consumption and income levels?
• Or maximizing people's capabilities--that is,
their ability to lead the kind of life they value.
• But does this definition depend on economic
growth?
• All of the theories of development say so
Review: Liberalism
• Economic growth is part of “modernization”
• Demography and Technology create
conditions for growth
• Accumulation of capital
• Mass Consumer society
Tradition
and
Modernity
Tradition
Example
Modernity
example
collective unit of
social organization
Religion, ethnic
group, tribe
Individual as the
unit of social
organization
U.S. Bill of Rights,
Personal ties
govern social
organization and
behavior
family, tribe
Pragmatic and
functional ties
govern behavior.
markets,
professions,
associations
essentialist
identity
ethnic identity,
religious identity,
Multideminsional
Individual identity
Identity derived
from mystical
principles
religion
Free choice of
identity
See above
Ascriptive
hierarchies,
Kingdoms, families
Functional
hierarchies
Parliaments,
Summary of Liberal Theories of
Development
Internal
Stimulants
Hindrances
External
•Human Capital
•Entrepreneurial Spirit
•Efficient Government
•Savings
•Research and Development
•Investments
= Modern Society
•Opportunities to Catch Up
•Foreign Investments
•Trade
•Aid
•Political Instability
•Corruption
•Traditional Society
•Trade Barriers in the North
•Absence of project finance
•Absence of Balance of
Payments finance
Dependency Theory is concerned with
global inequality…..
Income distribution,
f13 Lecture Development\movie.swf
And…….
Dependency Theory asks why this
difference?
Dependency Theory’s explanation
• Remember the Liberal explanation?
• Dependency Theory rejects Liberalism’s
central assumptions, arguing……
• The factors that liberals argued would
contribute to growth actually contributed to
inequality!
The importance of Technology and
technology to development
• The relation between center and periphery
causes the inability of the periphery to
develop an autonomous and dynamic process
of technological innovation.
• Technology – the Promethean force unleashed
by the Industrial Revolution – is at the center
of stage.
Dependency Theory: a theory of
exploitation in international exchange
• Marxist theories were concerned with
exploitation at the site of production
• Dependency theory focuses on exploitation at
the site of exchange
• Core and periphery
• Core is enriched at the expense of the
periphery: exploitation
• The opposite of comparative advantage
Engl
and
Cotton
Machinery
3
5 (Total production =8)
India 9
Engl
and
6 (Total production=15)
Cotton
Machinery
1
10 (Total production =11)
India 16
The Beauty of Comparative
Advantage
Before Specialization
And Trade
GWP = 23
With Specialization
But without Trade
GWP still 23
0 (Total production=16)
Cotton
Machinery
Engla
nd
5
6 (Total production =11)
India
12
4 (Total production=16)
With Specialization
And Trade
GWP = 27 amd both
Better off
Dual Economies and Dependency
Core (North)
Periphery (South)
Periphery
Per
Core
Periphery
Core
Core and Periphery in the Periphery
Terms of Trade
• What does this mean?
• Dependency theory: TOT are against the South
• Why?
– Overwhelmingly commodity exporters
– Inelastic demand
– Multiple suppliers drive down the price
• Oil as the exception
• Constant deterioration in TOT means the South is
always disadvantaged unless countries can export
manufactured goods.
Oil is the Exception
OPEC
• OPEC sets production levels which sets the price
of oil
• Other commodity producers have tried to
organize cartels like OPEC but haven’t succeeded
because they were large groups
• OPEC is a small group
• Collective action is easier in small groups than in
large groups
• New oil discoveries undermine collective action
Commodities Trade
•
•
•
•
•
•
WTO forbids subsidies on manufactured goods
WTO does not cover trade in commodities
South is dominant producer of commodities
The North subsidizes its agricultural goods
Poor farmers in the South can’t compete
Doha Round has achieved nothing so far
MNCs and Dependency
• MNCs contribute to dependency
• No “trickle down”
• MNC brings in what’s good for itself, not what’s good
for the country—prevents capital accumulation
• No investment in local firms
• Raise capital by buying out domestic firms
• Alliances between the rich in the South and the Rich in
the North
• Create useless consumption through advertising
• Brain Drain
MNCs and Dependency
Core (North)
Periphery (South)
Periphery
Brain Drain and Luxury exports
Core
Per
Core Technology for Luxury production
Periphery
The role of the IMF and World Bank in
perpetuating Underdevelopment
• Conditionality and structural adjustment
• Only source of qualification for new loans
Aid contributes to Dependency
Core (North)
Periphery (South)
Periphery
Exports (paid for by aid)
Core
Per
Export
s
Development Aid
Periphery
Core
How did this come about?
Core (North)
Periphery (South)
Periphery
Concentration of Industry
Slaves
Per
Core
Core
Outdated and extractivet echnologies
Raw Materials
Periphery
Periphery and core in the “periphery”
Southern Response to Dependency
Theory: Economic Nationalism
• The “South” did not have the strength to
participate in the international economy
• By 1960s, Independence for many countries
• And had clear majority in the U.N.
• Rose up against the GATT
The Problem of Development from an
Economic Nationalist Perspective
• Exploitation of the South by the North
• Wealth of the Rich depends on the Poverty of
the Poor
• Northern Dominance over the South
– Colonial legacies
– International institutions
– Example of Doha Round of WTO Negotiations
The Domestic Solution: ISI
• What is ISI?
• Infant industry arguments
• But ISI distorts free trade
The International Solution: NIEO – A
Global welfare state
• Historical Origins
• Theoretical Origins: Dependency Theory
• Rich Country Response
NIEO Program: Transfer of resources
from North to South
• Finance
– No “conditionality” for loans
– Creation of a new international currency
• Trade
– Free access to rich markets
– Stable prices for commodities
• MNCs
– Right to nationalize resources
– International regulation and supervision of MNCs
• Aid
– All states must conform to a target of .75% of GDP in Aid
Any Progress?
•
•
•
•
•
•
The South’s voice was heard
Aid Targets not met
No international Currency
The Generalized System of Preferences
No governance over MNCs
No real progress…..
The Failure of “stages,” NIEO, ISI, and
the Problem of Debt
• NIEO was abandoned
• Tariffs remained in place after industry was
thriving
• Because of “distributional coalitions”
• The growth of a base of inefficient industries
which could not compete internationally
• Which left countries dependent on aid and
loans
Why the Debt?
• Oil Shocks of the 1970s
• Private banks were willing lenders
• A marriage made in heaven.
Why was the debt a problem?
• Debt is not necessarily a bad thing—in fact it
can be a good thing.
• Then what’s the problem?
The Fed raises interest rates
Internal and external causes of debt
• Global recession
• Culture and institutions
• An unregulated international financial system
How it works
Poor
The Result
• Interest payments outstrip export earnings
• Net transfer of financial resources from South
to North
A Decade of Development wiped out
by Debt
• Declining growth rates
• Falling living standards
• Riots
Liberal response:
• Heavy loans made in the 1970s because of the
oil crisis
• Net outflow because countries did not use
their loans wisely
Joe’s story