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Development Prospects. Bright Outlook Smith : Virtuous circle of growth Schumpeter Creative destruction Triumphalism Washington Consensus Market Fundamentalism North, Wallis, Weingast Limited Access ? Open Access. Dim Outlook Ricardo Diminishing Marx
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Development Prospects Bright Outlook Smith: • Virtuous circle of growth Schumpeter • Creative destruction Triumphalism • Washington Consensus Market Fundamentalism • North, Wallis, Weingast Limited Access ? Open Access Dim Outlook Ricardo • Diminishing Marx ReturnsContradictions Declining Profit Lenin Free Trade Imperialism Vicious Circles MyrdalPrebisch Cumulative Primary Goods Causation Trap Poverty Trap ISI Rajan:Rent Preservation Polanyi: Unnatural Market
Gunnar MyrdalCumulative Causation Conventional Equilibrium Approach “Harmony of Interests” Laissez – faire Free Trade Myrdal’s Critique of Equilibrium Approach • The “other things” that are assumed to remain equal – particularly social and political relations – change with economic outcomes. • They change in ways that lead to divergence, not equilibrium. Thems that gotsgits.
Gunnar MyrdalCumulative Causation • “Spread Effects” • Peripheral regions supply the dynamic center • “Backwash Effects” • Dynamic regions suck the best resources from the backwater • Free trade and free migration hurt the periphery Thems that gotsgits.
Raul Prebisch – Hans SingerUNECLA • Primary goods trap Development increased demand for manufactured goods • Demands for primary goods are income inelastic • Primary goods prices fall relative to manufactured goods prices over time • Terms of trade move against primary good exporters Prescription: Import Substitution Industrialization (ISI)
Mantra of the 1990s: Washington consensus – Market Fundamentalism: 1. Fiscal policydiscipline 2. Redirect public spending away from subsidies/toward pro-growth, pro-poor services (education, health, infrastructure) 3. Tax reform: broaden tax base/ moderate marginal tax rates 4. Market determinedinterest rates: positive (but moderate) real rates 5. Competitive exchange rates: neither fixed nor free-floating 6. Liberalizetrade 7. Facilitate foreign direct investment 8. Privatizestate enterprises 9. Deregulate… except oversight of financial institutions 10. Assure legal security for property rights.
Hernando de Soto: The test is, can the system work for the majority of the people? …this is capitalism's testing moment. This has happened before. In Latin America, we found that in at least five opportunities, all our countries since the 1820s [have] actually tried to follow the U.S. model or the Western model. We've privatized railways and we have lowered our tariffs to zero and we've opened ourselves up to foreign investment, and five times we've had to go back because it made sense for a very small [group] of people at the top of the pyramid, but for the majority it didn't work. So our thesis is, basically, the reason it doesn't work for the majority is because the system can only work with property rights. Markets and capitalism are about trading property rights. It's about building capital or loans on property rights. What we've forgotten, because we've never examined the poor, we've sort of thought that the poor were a cultural problem, is that the poor don't have property rights. They have things, but not the rights. And when you don't have the rights…
Karl PolanyiThe Great Transformation • Market Economy is Historically Rare • Laissez Faire is Unnatural • Enforced by Strong, Oppressive State • Resistance to Market is Natural • Reaction to Liberalism … Welfare State • Social Protection vs “Self – Regulating” Market
