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1st ed. 2018, XV, 172 p.
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Gianni Vaggi
DevelopmentThe Re-Balancing of Economic Powers
- Presents a recent history of development theories and debates from 1950 to the present
- Presents a theoretical framework to discuss different issues related to growth, multifaceted development and power structures
- Stresses the role of economic powers and structures, paying particular attention to the issue of financialization
- Argues that development is a dialectic relationship between people's empowerment and the existing social and economic structures
This book provides a brief history of the notion of development and related policies. Readers will find an overview of the main development notions and debates from 1950 to the 2015 Sustainable Development Goals. The author argues that sustainable development is equal to empowerment within a specific historical setting; development is a dialectic relationship between people's empowerment and the existing social and economic structures. The book examines some well-known growth theories from Harrod in 1939 to contemporary debates views about the role of the state and the market. Some major structural changes are also examined from economic growth in Asia to international finance: the author contends that contemporary issues on development can be better understood with the help of the founding fathers of economics, from the Mercantilist era to Marx. They help to understand the difficult relationship between development and market forces within different models of social and economic reproduction. The author contends that the main development challenge is that of building a global partnership in a system with enormous differences in economic powers and offers some examples of how to re-balance the existing economic powers particularly in trade and finance.
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Development
The Re-Balancing of Economic Powers
Gianni Vaggi
Pages: XV, 172.
Palgrave Macmillan, 2018.
Basingstoke.
https://www.palgrave.com/it/book/9783319548784
DOI: 10.1007/978-3-319-54879-1
eBook ISBN978-3-319-54879-1
Dedication
This book is dedicated to my wife Franca, for her continuous support and patience.
The book has been written for my students from the courses in Economics of Cooperation and
Development at the Department of Economics and Management and in the alike Master program at
the University of Pavia. I have had the privilege of teaching in similar Master’s programs in
Colombia, Palestine, Kenya, and Nepal.
Sharing the classroom experience with the students is a professional and human gift.
Development is about the future and the future is theirs.
I want to thank Marta Marson, who has greatly helped me in improving the book. An anonymous
reviewer provided very useful suggestion.
Table of contents
Introduction
Chapter 1. In the Beginning There Was Economic Growth
1.1 Harrod: when the economic cycle becomes a growth theory
1.2 ’Trickle down’ growth and convergence. The neo-classical theory of
economic growth
1.2.1 Equilibrium growth
1.2.2. Convergence
1.2.3 The “steady state” and the technical progress puzzle
1.3 Off the main track: dualistic economies and technical change
1.3.1 Lewis: the dualistic structure and surplus labour
1.3.2 Kaldor and technical progress
1.3.3. Beyond economic growth: basic needs and employment
1.4 The structures of capitalist economies and the international division of labour
1.4.1 The structuralist approach in Latin America
1.4.2 Gunnar Myrdal: circular cumulative causation
1.4.3 The Marxian approach and the international division of labour
1.5 Market efficiency and rational agents
Chapter 2. Towards a Broader Definition of Development
2.1 Human Development and the Millennium Development Goals
2.1.1 The Bruntland Report, 1987
2.1.2 The Human Development Report, 1990
2.1.3 The Millennium Development Goals, 2000
2.2 Poverty
2.3 Beyond GDP
2.4 From the Millennium Goals to Sustainable Goals
2.4.1 The road to the SDGs
2.4.2 Old and new goals
2.4.3 On ends and means
2.5 Changing views on international cooperation
2.5.1 The Washington Consensus and conditionality
2.5.2 From aid effectiveness to global partnership
2.6 Bridging empowerment and ownership
Chapter 3. The Economy Strikes Back: Convergence, Divergence and Imbalances
3.1 Rising Asia
3.2 International financial markets
3.2.1 The bright and dark sides of international finance
3.2.2 Financial markets and developing countries
3.2.3 The temptation of cheap money
3.3 Increasing inequality
3.4 Secular stagnation. Three paradoxes about savings
3.5 Imbalances
3.6 Discouragement
Chapter 4. The Founding Fathers and the Long-Run Visions
4.1 The age of merchant capital. Trade and power
4.2 Food surplus and reproduction
4.2.1 Physical surplus
4.2.2 Reproduction and the productivity of agriculture
4.3 The Enlightenment: justice and prosperity
4.4 Adam Smith and the productivity of labour
4.4.1 A new principle of wealth
4.4.2 Investments, the spirit of monopoly and imbalances
4.4.3 The labouring poor
4.4.4 Natural progress and developing countries
4.5 Ricardo, free trade and the falling profit rate
4.6 Marx and the laws of motion of the capitalist mode of production
4.6.1 The modes of production
4.6.2 Capital accumulation and crises
4.7 Conclusions
Chapter 5. Sustainable Reproduction, Use and Exchange values
5.1 Sustainable reproduction
5.1.1 Value in use and value in exchange
5.1.2. Re-production cycles and sustainability
5.1.3 Overcapacity and secular stagnation
5.2 Achieving use values through exchange values
5.2.1 Going micro
5.2.2 Institutions for markets
5.3 When Structures Should Change
5.3.1 The state and economic growth
5.3.2 Beyond economic development
5.4 Neo-Mercantilism and its features
5.5 Financial Mercantilism
5.5.1 The Mercantilist reproduction cycle
5.2 The financial reproduction cycle
Chapter 6. Making the Global Partnership Work
6.1 ‘To the lighthouse’
6.2 Last but not least
6.2.1 When means are more important than ends
6.2.2 Country ownership
6.3 Re-balancing: reducing distances
6.4 Sweet and sour trade
6.5 Financing for development
6.5.1. Different types of financing for development, FfD
6.5.2. Development bonds
6.5.3. Separate markets for development finance
6.6 The road to dignity
6.7 Conclusions
References
Index
Introduction
The aim
Too long for a paper, too short for a book, read it as a pamphlet. This is not a textbook, as it is not
exhaustive and cannot go deeply into specific topics. End notes and references might help, but
perhaps you should read it as a pamphlet with two main propositions.
First, development is a process involving the empowerment of people and countries, which can be
either supported or constrained by the social and economic structures existing around them.
Second, the re-balancing of the economic powers of the different stakeholders is a necessary
condition for a decent development process.
Today we are in a very convenient position because there is a wide-ranging consensus that
sustainable development should be interpreted as a process of empowerment. Since 2015, we have
had 17 Sustainable Development Goals, SDGs, with three dimensions of sustainability: the social,
environmental the economic dimensions.
This book contends that a process of development must take into consideration the social and
economic structures which represent the landscape in which empowerment should be achieved.
Development is a dialectic process between people’s empowerment and countries’ ownership and
the surrounding social and economic structures. It is urgent that we put the view of development as
freedom into a broader perspective that includes social and economic forces, especially considering
some of the major structural changes that have taken place in the international economic setting
since the ’80s.
The holistic view of sustainable development is replete with many different goals, but in the coming
years development will concern decisions about technology, trade and finance, three main themes
of Sustainable Development Goal 17. Who is going to decide, and based on what criteria?
Development as empowerment requires the re-balancing of economic powers regarding those
choices. Re-balancing is not the automatic outcome of a market economy: policy action is needed.
The re-balancing of economic and negotiating powers is the major challenge that development
cooperation will face in the coming decades, particularly in the areas of trade and finance.
The content
In Chapter 1 we see that in the ’40s and ’50s development was regarded as an increase in income
per capita. From the very beginning, development economists were not a unanimous group but
broadly divided according to two visions: a mainstream one and a critical one. The mainstream
approach emphasized convergence in income per capita between rich and poor countries and the
‘catching up’ by developing countries; moreover, economic growth was to spread to all people of
the country: this is the ‘trickle down’ type of growth.
The heterodox group included authors who emphasised the structural change/dualistic view of the
economy: economists in the Keynesian tradition and the neo-Marxian writers. These economists
stressed the role of social and economic structures and of the international division of labour.
Chapter 2 describes how the notions of development and international cooperation have evolved
from being equated with economic growth, development has expanded to include dimensions such
as health, education, natural resources, good governance, and human rights.. Three major steps are
discussed: the 1987 Brundtland Report, the first Human Development Report of 1990, and the 2000
Millennium Goals (MDGs). Health, education, environment and gender are important components
of the notion of human development.
The 2012 Rio+20 Conference led to the Sustainable Development Goals, SDGs, with the
environmental dimension forcefully entering the picture. This section examines the major novelties
of the SDGs with respect to the MDGs, incorporating some thoughts on the issue of sustainability.
Sections 2.5 and 2.6 examine changes in the approach to international cooperation, which has
moved from the donors-beneficiaries relationship and from the Washington Consensus
conditionalities to a broader view of global partnership. Empowerment and ownership are two
concepts which highlight the changing views on development cooperation.
Chapter 3 discusses two major changes which have characterized the international economic
landscape since the late ’70s. First, the spectacular Asian growth, China in particular, which is
deeply changing the international economy and development cooperation. Many Asian countries
are now ‘new donors’, and poverty reduction, Millennium Goal n. 1, has been achieved thanks to
fast growth in China. Should the Asian growth be a model for all low income countries? The second
major transformation concerns finance: in 1980, financial markets were very small; now they are
almost 10 times larger than the World GDP. A large stock of finance and large number of new
financial tools represent good news considering all the means needed for sustainable development.
However, financial crises have become a widespread and recurrent phenomenon, and not only in
developing countries: from Mexico’s default on its foreign debt in 1982 to the 2007 sub-prime crisis
in the United States.
Both changes are structural in nature: they are here to stay.
There are two more changes which characterize the present economic landscape. The first concerns
the worsening income distribution in high income countries and in many emerging ones. Income
and wealth are now highly concentrated in the top 10% and top 1% of the population. The second
change is related to the slowdown in economic growth in high income countries since the 2007
financial crisis: this is the issue of secular stagnation (Baldwin and Teulings 2014). The world
economy is also characterized by two ‘imbalances’ with very few signs of a tendency to redress
them; they concern trade relations and migrations.
The ‘facts’ highlighted in Chapter 3 remind us that economic forces can decisively affect the
conditions in which development should take place. What about development as empowerment and
freedom? What is left of the holistic view of development? A pause and some reflections might
help, and for that we look for assistance from some ‘Founding Fathers’ of economic thought.
Chapter 4 provides a sketchy view of some leading thinkers from the Mercantilist period to Marx.
The chapter follows a chronological order, but many themes crisscross development debates today:
human rights, the role of trade, natural resources and basic needs, labour productivity and
employment, capital accumulation and technology, self-interest and profitability, and crises.
Trade is regarded as a source of wealth by the Mercantilists, but it is considered as a possible reason
for wars during the Enlightenment. Natural resources and labour occupy centre stage with Petty and
Quesnay, who analyse the conditions for the reproduction of society and for whom a surplus of food
production is at the core of economic potential. It is not just a question of economic growth, the
issue of human rights and of governance in a non-hierarchical society dates to the Enlightenment
and to Montesquieu’s separation of powers, based on checks and balances.
In 1776, Smith described how the division of labour increases labour productivity and how the
accumulation of capital leads to better technology, a sort of embodied technical progress, with the
rate of profit becoming the guide to investment decisions. Smith and Ricardo attacked Mercantilist
doctrines, but their support of free trade is much more articulated than what appears in the
mainstream interpretation. Marx provided an analysis of the crises of a capitalist economy while
also examining the interplay between the economic forces and the other aspects of society, what he
termed the ‘superstructure’. The classical economists highlighted the difference between use values
and exchange values in the process of economic and social reproduction.
Chapter 5 revisits the sustainable development goals in the light of sustainable reproduction. The
SDGs largely focus on end goals, which can be regarded as ‘strategic use values’ to be pursued
inside economic and social structures which are dominated by ‘exchange values’. Section 5.1
examines the issue of sustainability in different types of re-production cycles; the universal,
capitalistic, sustainable and financial reproduction cycles combine use and exchange values in
different ways. Secular stagnation is re-examined in light of the Marxian analysis of crises.
Sections 5.2 and 5.3 present different approaches on how to achieve sustainable development within
the capitalist economy. These range from Randomized Control Trials, RCTs, which focus on micro
and localized experiments, to the analysis of specific incentives and market games. Another
approach recognizes a fundamental role of institutions as possible mediators between the micro and
the macro levels. Neo-structuralist and neo-Keynesian authors emphasize the macro-constraints to
growth facing developing countries. Views related to de-growth and to the circular economy focus
on the limitation of natural resources and favour a different system of production and consumption
in which sustainability requires the abandonment of the idea of economic growth.
The two final sections highlight the essential features of neo-Mercantilism, demonstrating that we
have entered a period of Financial Mercantilism whose reproduction cycle moves directly from
money to more money and is completely dominated by the realm of exchange value. Chapter 6
concludes. There is a widespread consensus on sustainable development as a process of
empowerment through freedom and ownership, together with the 17 SDGs and the 3 dimensions of
sustainability. The main challenge in the coming years will be on how to make global partnership
work within social and economic structures characterized by deep-rooted economic and power
imbalances. The path towards sustainable development is more important than its definition.
Sections 6.2 and 6.3 highlight some conditions for global partnership, the topic of SDG 17.
Development can only be achieved through negotiations and dialogue, and it must be based on
fairness. However, different stakeholders have very unequal political and economic powers. The re-
balancing of the negotiating powers among the different partners is the leading principle moving
along the path toward global partnership. This partnership involves some critical issues: finance,
technology, trade, and capacity building. Which decisions will be taken and how they are going to
impact the future of sustainable development. Re-balancing means that developing countries, Low
Income ones in particular, must have a much stronger voice than in the past and they need more
policy space. Sections 6.4 and 6.5 provide some examples of re-balancing in the case of trade and
finance. Improvements in the institutional and administrative capacity of developing countries,
which are the necessary component of an effective development dialogue. Section 6.6 focuses on
development as dignity.
The story of development has started with economic growth, to move on to empowerment,
ownership and freedom and now it ends up with negotiations and re-balancing. Not a very attractive
conclusion, but a very realistic one if we want to progress with global partnership for sustainable
development.