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1. Economic theories of development

What development economists agree on:

Development economics: deals with the economic,social, political, and institutional mechanisms, both

public and private, necessary to bring aboutimprovements in wellbeing.

Structural change is an essential part of this process

BUT: does this mean a shift away from agriculture orincreases in productivity throughout the economy?(see Timmers papers on Blackboard)

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Back and forth: theories of economic developmentSee Hunt, D. (1989)EconomicTheories of Development: An Analysis of Competing Paradigms H. Wheatsheaf. 338.9-HUN, ch3

1945-mid1950s

Context: political independence of several developing countries, Worldwidepolicies to boost aggregate demand (Keynesian), setting up of the BrettonWoods institutions (World Bank, IMF, WTO), state intervention and

planning of the economy (Soviet Union)

Ideas underdevelopment as low-level equilibrium caused by low savings, highpopulation growth, market failures due to scale economies and externalities

(Rosenstein-Rodan, Nurkse), dual economy with backward sector(agriculture) and modern sector (industry) (Lewis), emphasis onintersectoral linkages and discussions about the benefits of balanced versusunbalanced economic growth (Lewis, Hirschman)

mid1950s-late 1960s

Context uneven international development (Myrdal) and import substitution

policies to promote industrialisationIdeas Marxist theorists (Baran): importance of political and social factors in

development and inefficiency and corruption of capitalist state.Structuralism (Cardoso, and Prebisch at the UN ECLA, Chenery):recognition of structural rigidities typical of DCs : supply rigidities inagriculture and industry, terms of trade weighted against DCs exports

(Singer and Prebisch)

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mid1960s-1980

Context emergence of the Newly Industrialised CountriesTaiwan,Singapore, South Korea, Hong Kong, debt problem in LA and SSA

Ideas revival of neoclassical economics, free market policies and export

orientation (Lal, Little, Scitovsky); emergence of basic needs agenda,emphasising neglect of the poor; dependency school: criticism of structureof international relations and trade (and transnational corporations) whichsystematically hampers efforts of ISI countries

1980s and 1990s:

Context Debt crisis, IMF and WB first structural adjustment wave: recessionand poverty increases.Revision of the NICs experiences showing thescope for state intervention and the synergies between states and markets,BUT continuing pressure to liberalise.

Ideas Raise of institutions: New growth theory emphasising role of incomeinequality, education and natural resources, New structuralist theorystudying determinants of growth, income distribution, inflation, and fiscaland balance of payments problems. Micro: New neoclassical approaches(industrial organisation, game theory and information economics) appliedto development (agrarian relations, income distribution, causes of poverty).

POST CRISIS: rediscovery of state intervention and regulation (back tothe 1940s???)

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2. Development policies: West vs South (and East)

The Washington Consensus (World Bank and IMF policies): macroeconomicstability (control of inflation and reduction of fiscal deficit), liberalise trade andfactor markets (privatisation and deregulation), globalisation of development policyanalysis (one recipe) and a-historical performance assessment

Beliefs: markets work wel l and are super ior to gvts. in resource allocation, al leconomies behave in the same way, all economies tend to equi l ibrium, predictableresponse to pol icy,speed of transition depends on the consistency of policymakers and the swif t removal of barr iers to market functioning

Issues not addressed: how long is the transition? how large the negative effects to be

tolerated? how large the positive ones needed to compensate them?

First adjustment wave -Washington Consensus: adoption of different trade regimes(elimination of trade barriers adopted during the Import Substitution phase),privatisation of large domestic firms (particularly in the service sector),deregulation of labour and financial markets

Second adjustment wave refurbished Washington Consensus or augmentedWashington Consensus: investment in education, training and infrastructure,access to finance for modernisation for small and medium enterprises (SMEs),education reform, safety net type of projects for those who bear the costs of reform ,need for good governance and anti-corruption measures, controls on flows of hotmoney

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The Southern Consensus (Latin American Structuralism and East AsianDevelopmentalism): reject idea that there is one recipe for growth with lateindustrialisation, heavy emphasis on historical analysis of processes of lateindustrialisation in the world periphery, emphasis on development of nationalcapabilities.

Beliefs: institutional failures of markets, governments, and international institutionsstructural differences and asymmetries exist, path-dependency (history matters)and lock-in (some processes may be irreversible) Asymmetr ic globalisation inwealth generation and in markets: think of mobil i ty of capitals and products andbarri ers to labour mobi li ty.

Policies: growth and structural change to be achieved through strategic integration ofnational economy into the world economy (attention to time and sequencing ofopening up); combine macroeconomic policy with productive developmentpolicy, mixing sectorally-neutral and selective policies (technology policy,financial policy, human resource development, physical infrastructure development,industrial organisation and competition policy); government-business co-operation(common vision of development targets), pragmatic developmental state (supportfor private sector temporary and conditional on targets); management ofdistributional dimensions of the growth process to ensure legitimacy (wide assetownership and expansion of productive employment: agrarian reform, ruraldevelopment policies, re-investment of profits, profit-related payment systems,support for SMEs); regional integration and co-operation policies

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3. Sustainable development"Anyone who believes exponential growth can go on forever

in a finite world is either a madman or an economist."

Kenneth Boulding (1910-1993)

Read: http://limitstogrowth.net/Essay.html

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3.1 Biophysical limits to growth

Finitude: fixed size of the ecosystem that hosts an expandingeconomic system

Entropy: the ordered structures of the economic subsystem are

maintained at the expense of creating a more than offsettingamount of disorder in the rest of the system. Ecosystem assource of low-entropy inputs and sink for high entropy waste.Entropic costs = depletion of resources and pollution (seecontraction and convergence reading)

Ecological interdependence: ecological connections betweeneconomic sub-system and its hosting ecosystem are disruptedwith growth of economy

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3.2 Ethical and social limits to growth

Cost to unpaid workers: anything that does not enter the calculations of GDPdoes not matter, therefore it can be used up without need for reinvestment

Costs to future generations: how do discount rates work? Welfare of futurepeople?

Cost to other life forms: extinction and the welfare of other animals andplanet (Calculate your own ecological footprint:

http://adbusters.org/metas/eco/truecosteconomics/)

The capitalist mode of production is not the famous capital-wage-labour

relation, but rather needs different categories of colonies, women, otherpeoples and nature, to uphold the model of ever-expanding growth (Mies,Maria (1986)Patriarchy and Accumulation on a World Scale London and

New York: Zed Books)

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What then?United Nations Definition of Development The basic purpose of development is to

enlarge people's choices. In principle, these choices can be infinite and can changeover time. People often value achievements that do not show up at all, or not

immediately, in income or growth figures: greater access to knowledge, betternutrition and health services, more secure livelihoods, security against crime andphysical violence, satisfying leisure hours, political and cultural freedoms and senseof participation in community activities. The objective of development is tocreate an enabling environment for people to enjoy long, healthy and creativelives." Mahbub ul Haq

UN definition of sustainable development: development which meets the needs of thepresent without sacrificing the ability of the future to meet its needs.

Growth: quantitative increase by assimilation or accretion of materials

Development: qualitative improvement, realization of potential

Sustainable development: development without growth, limit the scale ofthroughput = the flow beginning with raw material inputs, followed by theirconversion into commodities and finally into waste outputs. Herman DalyBeyond growth: the economics of sustainable development (see alsohttp://dieoff.org/page88.htm)