Development Economics Khurram Butt Kevin Jeong Aya Okada PIA3395 Development Theories: PhD Reading...

Development Economics

Khurram ButtKevin JeongAya Okada

PIA3395 Development Theories: PhD Reading Seminar

Four Major Themes

1) Historical Understanding of Econ Dev

2) Conceptual Understanding of Econ Dev

3) Promoting Econ Dev (Role of the State)

4) Critique of Development

Golden Oldies

• Lewis, A. (1955). Theory of Economic Growth. Chapters 1-4.

• McCord, W. (1965). Springtime of Freedom. Chapters 1-2 and 4-6.

Lewis – The Theory of Economic Growth

• Growth of output per head of population - not distribution, not consumption - output as goods and services• The effect of human behavior• Proximate causes of growth 1) Effort to economize 2) Increase of knowledge 3) Increase of capital

• Differences between countries/groups in a same country/stages of history

- institutions　　 - beliefs and values

• Distinguishing consistency and evolution in discussing economic growth

• Clear focus on seeking for relevant policies for developing societies


• Will to economize - effort directed towards increasing the yield of a given effort/resources or reducing the cost of a given yield

• Causes of differences in an effort to economize 1) Differences in valuation of material goods relatively to the effort required to get them 2) Differences in available opportunities 3) Differences in the extent to which institutions encourage effort


Cause 1 Differences in valuation of material goods relatively to the effort required to get them

• Causes for lower valuation of goods 1) Asceticism 2) Higher valuation of other activities 3) Limited wants - goods one knows about and can use are limited

• Unequal efforts to acquire wealth even with the same desire to wealth - attitudes to work


• Matter of productivity 1) regularity 2) flexibility 3) willing to work conscientiously

• What matters to growth is the formation of productive capital, which is not necessarily associated either with willingness to work or with willingness to save.


Cause 2 Differences in available opportunities

• Spirit of adventure 1) Willingness to operate with a mind free from convention and taboo 2) Willingness to take risks 3) Willingness to move from one place to another as the occasion demands 4) Willingness to change one’s occupation

• Natural resources - Quality of human response; leadership


• Relationship b/w– Willingness of people to make the effort required for

economic growth, and– The community’s institutions

• Institutions promote or restrict growth:– Protection they accord to effort– Opportunities they provide for specialization– Freedom of maneuver they permit

• Running contrast b/w ‘primitive’ societies and those that have experienced ‘economic growth’


• Protection accorded to effort– Men will not make effort unless the fruit of that

effort is assured to themselves or to those whose claims they recognize

– “The right to reward”

• Differential effort and differential reward• Management of property• Reward for work


• Opportunities for specialization– Extension of trade and of specialization are a vital

part of economic growth– “Trade and specialization”

• Why is trade good?• The extent of market• Organization


• Economic freedom: Freedom to…– Change social status or occupation– Hire resources and put them to efficient use– Enter trades where others are already present

• Institutions that influence these freedoms– Individualism and collective action– Vertical mobility– Freedom of markets


• Other institutions– Religion– Slavery– Family– Organization of agriculture– Cottage industry

• Economic changes do not result solely from changes in institutions; neither do all institutional changes a result of economic growth!


• The role of knowledge in economic growth– Technical knowledge and social knowledge

• Growth of knowledge– The inventions of ‘writing’ and ‘scientific method’

have spurred the growth of knowledge

• Three eras– Pre-literate; writing without scientific method;

scientific method

• The most expansion has come in societies in the second era!


• Effect on science on technical knowledge– Three-staged process

• Developed countries focus on finding solutions to ‘their’ problems; developing countries don’t have resources for R&D that’s relevant for them

• Makes sense to borrow social inventions as well– Efficient administrative system– Free compulsory education– Land tenure systems


• The rate at which knowledge is taken up (applied) depends on:– Attitude towards innovation– Potential to bring profit

• Training programs– Prioritizing needs (the what)– Few well-trained or all half-trained (the who)– Shift from agriculture to industry


McCord, W. The Springtime of Freedom.

Bread or Freedom? How can both go together?

How is democratic development possible respecting human nature and tradition?

Portrait of Transitional Man: I. Transitional Village

• Deep Problems in Traditional Local Villages- Vested Poverty, Shortage of water & food, epidemics, gender discrimination

Characteristics of Traditional Villages- Isolation from other societies. - Tight cohesion separating residents from the outside world- Hierarchical relationship: patronage-client , parochialism- Fatalism: Caste System

Are they all true?

Or Stereotyping by Western Intellectuals?

Portrait of Transitional Man: I. Transitional Village

Two Preconditions of Welcomed Transitions 1. Villagers’ Firm Belief of the Value of the Change

2. Villagers’ capacity to innovate for the market requirement

Any change should concern of village people, especially young people, since they are the future of the change.

Urban centered changes have always tend to bring powerlessness to the village people.

II. The Transitional City

Deepening Urban Problems Over-populous city Abundant labor force Deepening urban problems such as poverty, inequality, crime, injustice and discrimination through increasing socially isolated urbanites who are vulnerable to the urban problems.

Anomic Urban Villagers

- They tend to replicate a village life with no stable value system. Deepening the anomies of the urbanites through experiencing vast emptiness of desperate urban life where the city is the outer edge of civilization for them

The True Aspiration of the Transitional MenGreater freedom, Land of their own, Cheaper food, Job

Governments in the 3rd world do not give these to the people but just spectacles like Olympic games or ideology.

II. The Transitional City

Real Implications No Free Lunch. Voluntary Change The Transitional Men (peasants): Subject of Change The Value of Traditional Cultures Destructive Urbanization No real Proof of validity of Authoritative Solution There are surely limitations of authoritative

solutions, and even there is no clear correlation

between development and oppression of dissents.

The Quest for Bread: IV. Finding the Money

Critical Challenges

1. Capital Accumulation 2. Agriculture Revolution3. Change in men and institutions 4. Channeling all changes into industrialization

Then, How? 1. Tyranny Way

2. Laissez-faire

3. A Middle of the Road: Pluralistic Solution

IV. Finding the Money

Key Responsibilities of State (For Democratic Development)

1. No capital usurpation 2. Restriction on unnecessary/luxury consumption3. Productive Investment of Capital 4. Strategic Capital Investment into certain areas

Two Main Methods of Capital Accumulation

1. Inevitable Necessity of Foreign Capital and Aid 2. Convincing people of the value of saving and abstaining consumption for

their future.

V. Transforming the Village and Its Land

Four Basic Reasons of Rural Revolution Priority

1. More Output in rural areas of developing countries2. Essential Preconditions for industrial-urban section3. Diversifying product lines for exports 4. Reducing overpopulation problems

Lessons from Successful Cases

: El Westiani in Egypt, Alipur in India, Awgu in Nigeria, Machako in Kenya

1. Positivity of Resolute Action Overcoming pessimism and fatalism.2. Voluntary Transformation 3. Transform initiated from above: change agents from outsides 4. Land Reform

VI. Industrialization

< Balanced Development between Industry and Agriculture> An essential prerequisite for a sustainable development

Myths of Heavy Industry Centered Development 1. Higher Efficiency 2. More Capital Accumulation 3. Higher Ripple Effects4. High Technology Achievement 5. The Bigger the better.

Problems of Heavy Industry Centered Development 1. Huge Cost from mistake 2. Capital Shortage3. Constant Unemployment 4. Hidden Overhead Costs to support the big systems: e.g. electricity, resource power, schools…

VI. Industrialization

Advantages of Light Industry Centered Development

: Decentralized/small scale A Pluralistic Approach

1. Immediate Satisfaction to the people (peasants) A True Self-sufficiency/Regaining sense of dignity. 2. Avoiding the Urban problems through reducing migration. 3. Reducing Political Discontent and Unrest

“For the next decades, decentralized, balanced, small-scale industry offers most developing nations (at this stage of their evolution) important economic, social, and political benefits.”(p120)

Importance of Wise Government RoleImportance of Wise Government Role

Historical Understanding

Martinussen –theoretical Dillard – empirical

Historical Understanding

Martinussen –theoretical Dillard – empirical

“How”

Harris & Leys - Trade(outward vs. inward looking approaches)

“How”

Harris & Leys - Trade(outward vs. inward looking approaches)

Literary Map

Criticism to Development

Escobar

Criticism to Development

Escobar

Economic Development

Economic Development

“What”

Lewis Isbister (growth) McCord

“What”

Lewis Isbister (growth) McCord

Synthesis

- Based on Four Main Themes

Historical Understanding of Econ Dev • Martinussen gives a theoretical background in understanding

economic development in developing countries. He provides explanations of theories and studies that deal with the causes and dynamics of the developing countries’ development passages in terms of, first, mode of production and, second, international division of labor.

In the mode of Production: Roles of National Bourgeoisie In the International Division of Labor: TNCs (*Appendix)

: As essential task carriers for the evolvements. • Dillard provides an empirical analysis on historical evolution of

capitalism. Dillard sees capitalism as having an origin in Britain’s woolen and cloth industry, which spread throughout the world via expansion of long-distance trade.

• Lewis understands economic development as growth of output per capita which is caused by 1) effort to economize, 2) increase of knowledge, and 3) increase of capital.

• According to Lewis, ‘Effort to Economize’ has two dimensions: the ‘people’ (values, beliefs, behavior, etc.) and the ‘institutions’

• Institutions impede or facilitate ‘economic growth’ depending on the degree of protection they accord to the effort, opportunities they provide for specialization and freedom of maneuvre

• Trade is seen as an important institution that leads to specialization

Conceptual Understanding of Econ Dev

• Isbister understands economic development not only in terms of growth (as Lewis) but also in terms of environmental sustainability, income distribution, and basic human needs.

• McCord points out the limitations of centralized/authoritative development, and suggests pluralistic decentralized development that would ease the pains of urban-centered development and promote real indigenous growth capacity in a democratic form.

Conceptual Understanding of Econ Dev

• Harris asserts that the political idea that was the ‘third world’ no longer exists; now merely a group of countries

• Rapid industrialization, fueled by international trade, has made third world countries an integral part of the world market and the world system

• The more integrated third world countries become into the world system, the lesser state’s power to manipulate the domestic economy

• Third world growth attributed to their contribution to a common world product through international trade

Promoting Econ Dev (Role of the State)

• Export orientation versus import substitution – two paths to industrialization: Asia succeeded because of its emphasis on the former; Africa lagged behind because of its emphasis on the latter

• Leys delves deeper into the African example; cites dependency theory driven strategies that emphasized an inward-looking approach

• Harris and Leys taken together are talking about capital accumulation, via trade, and may be plugged into Lewis’s framework of three reasons for economic growth.


• Dillard refers to a “swing” between the state and the market in taking initiative of economic development. In early capitalism (1500-1750), it was the states who played a large role for enhancing capital formation (mercantilism). In the period of classic capitalism (1750- 1914), market swept over the state.


Critique of “Development”

“All types of societies are limited by economic factors. …The self-regulating market system was uniquely derived from this principle. The mechanism which the motive of gain set in motion was comparable in effectiveness only to the most violent outburst of religious fervor in history. Within a generation the whole human world was subjected to its undiluted influence.”

- Karl Polanyi, The Great Transformation, 1944.

• Escobar criticizes the fundamental assumptions of development as being truncated within the Western disciplinary frames through the discursive analysis of diverse references of development used in leading Western institutions and elites while eliminating possible alternatives: Hybridity Models as a autonomous local model.

• The dominant Western institutions have problematized poverty, rural society, peasants and hunger through their legitimated rational discourses at various and diverse levels and aspects (University, Int’l Org. Think Tank, Media…etc.) while removing the genuine local voices from the local people since they have been just objects of the power, not the subjects who could unfold their own innovative capacities.

Critique of “Development”

Appendix:

Global Economy Peripheral Economy

Extraverted

Capitalist

reproduction

(1) Auto-centric Capitalist

reproduction

(2) Non-Capitalist

modes of

reproduction

Linkage+/- +/-

1. Changes in a Higher/lower direction in (1) Auto-centric capitalist Reproduction

2. Changes in the interrelationship between (1) and (2) either expansion of (1) or (2)

3. Changes in the structuring of (2) (e.g. introduction of capitalist elements in rural areas.

4. Changes in the distribution of ownership and control between the state and the private sector

+/-

A simplified model of the reproduction processes in a peripheral economy

Appendix:

P1 P2 P3

Level of Industry Low Mid Mid-High

Modes of Production

Raw/Agrarian Consumer goods industry

High Tech Industry

Production Capacity

Low Mid Mid-High

Set Backs High Mid Low

Class Structure Weak Emerging National Bourgeoisie

/working Class

Strong National BG & PT class

Influence of Foreign Capital

Strong Strong Weak but still dependent on high

tech.

Interest Priorities Foreign Capital Foreign/National BG

National BG / State

Role of State Passive Mid Active

Cases Sub-Saharan countries

Many Latin American and

Asian countries

South Korea, Taiwan, Brazil, Mexico, Chile

Three Levels of Peripheral Societies

Appendix: Dynamic Profit Structure of TNCs

Parent Company

Branch/ subsidiary

Imports

Money capital

Money capital-and loans and equity capital paid up by local investors

Inputs labour

Exports

Production processes

Commodities

Money Capital

Investment

Profit1-Overpricing

Profit2-Underpricing

Profit3- Margin

1st stage

2ndst stage

3rd stage

4th stage

Profit remittances, etc.

References• Dillard, D. (1996). Capitalism. In Jameson, K.P. and Wilber, C. (Eds.). The Political

Economy of Development and Underdevelopment. New York: McGraw Hill. • Escobar, A. (1995). Encountering Development: The Making and Unmaking of the

Third World. Princeton: Princeton University Press. Chapters 3 and 4.• Harris, N. (1986). The End of the Third World. London: Tauris. Chapters 4-6.• Isbister, J. (2001). Promises Not Kept: The Betrayal of Social Change in the Third

World. Bloomfield: Kumarian. Chapter 6.• Lewis, A. (1955). Theory of Economic Growth. London: Allen and Unwin. Chapter 1-

4.• Leys , C. (1996). The Rise and Fall of Development Theory. Bloomington, IN: Indiana

University Press. Chapters 7 and 8.• Martinussen, J. (1997). Society, State and Market: A Guide to Competing Theories

of Development. London: Zed Press. Chapters 8 and 9.• McCord, W. (1965). The Springtime of Freedom: The Evolution of Developing

Societies. New York: Oxford University Press. Chapters 1-2 and 4-6.

Development Economics Khurram Butt Kevin Jeong Aya Okada PIA3395 Development Theories: PhD Reading...

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