Development and Development Models

1. Developmentand Development Models

2. W.W. Rostow & his Stages of Growth Theory Walt Whitman Rostow • Born 1916 • American economist and political theorist • Johnson’s Special Assistant for National Security Affairs • A staunch anti-Communist • A champion of capitalism and free enterprise • Author ofThe Stages of Economic Growth: A non-Communist Manifesto (1960)

3. W.W. Rostow & his Stages of Growth Theory The Stages of Economic Growth • Modernization occurs in five basic stages • Traditional society • Pre-conditions for take-off • Take-off • Drive to maturity • Age of high mass consumption All countries go through these stages fairly linearly • Traditional societies • Fatalistic • Norms of economic growth are completely absent in a traditional society

4. W.W. Rostow & his Stages of Growth Theory The Stages of Economic Growth • Traditional societies • Believing that humans have limited capacity to change the world • Weak national government • Preconditions to take-off • A strong national government • Popularization of secular education • Capital mobilization for productive purposes • Rise of entrepreneurial class • Start of manufacturing

5. W.W. Rostow & his Stages of Growth Theory The Stages of Economic Growth • Take-off • Start of sector-led growth • Society driven by economy rather than traditions • Society in transition to a modern economy • Drive to Maturity • Diversification of production • New sectors taking shape • Reduced poverty & rising living standards

6. W.W. Rostow & his Stages of Growth Theory The Stages of Economic Growth • Age of High Mass Consumption • A society of general affluence • Durable goods as opposed to subsistence concerns • Arts and music as opposed to money and prestige

7. W.W. Rostow & his Stages of Growth Theory Criticism of Rostow’s Model • A model based on Western development experience • Development cannot be linear • Countries can take-off and slip back to a transitional economy, e.g., Russia • A model based on experience of big countries • Not applicable to small and resource poor countries

8. Import Substitution Model Key Points • State intervention is necessary • State should encourage domestic manufacturing by reducing imports • Protection of domestic industries is necessary • State should implement an “import substitution industrialization” strategy Weaknesses of ISI • Manufacturing development at the expense of agriculture • Food crisis • Increased LDCs dependence on DCs • Capital • Technology

9. Import Substitution Model Weaknesses of ISI • Manufacturing development at the expense of agriculture • Increased LDCs dependence on DCs • Inability to promote industrial competitiveness • Labor-intensive production • Value-added production • High-tech production

10. Neo-liberal Development Model Key Arguments • Fiscal rectitude • Cut government spending, maintain fiscal health and budget surplus • Competitive exchange rates • Market-determined exchange rates • Free trade • Removal of trade barriers, subsidies and regulations against flow of goods and services • Privatization • Transfer of state-owned businesses to under private control • Lifting price controls • Limited state intervention • No state capital control

11. Neo-liberal Development Model Key Arguments • Deregulation • Remove government restrictions on business activities • Export-led development

12. Soviet Development Model Key Elements • Abolition of private ownership • Abolition of market • Implementation of state-led development • Implementation of centralized planning • Investment • Input into heavy, consumer industries & agriculture • Production • Five-year plan • Consumption • Distribution of goods, price • Accumulation • Resources for future investment

13. Soviet Development Model Failures of Socialist Model • Loss of productivity • Widespread free-rider syndrome • Distortion of supply and demand • Price does not reflect labor and cost • Produce for the state • Not produce for the market • Loss of industrial competitiveness • Suppression of innovation • Poor quality and poor service • Economic stagnation • Widespread poverty

14. Export-led Growth Model Features of Export-oriented Economy • State-led development focusing on manufacturing for export • Government policy incentives for export-oriented production • Tax incentives • Export credits • Export targets • Duty-free imports of inputs required by exporters • Abolition of minimum wage legislation • Minimal taxes on employment of labor • Maintaining moderate trade protection of domestic market

15. Developmental State Thesis Features of a Developmental State According to Chalmers Johnson • A strong development-oriented state • State intervention in: • Providing guidance to the market • Controlling investment flows • Promoting technological development • Protecting selected infant industries • development as the top priority • Heavy investment in education • Availability of a highly skilled, technocratic bureaucracy

16. Political Culture Thesis Main Assumptions • A widely shared social values impact a state’s political economy • Nature of society rather than state or state policies determines a nation’s development • East Asian culture/Confucianism more congenial to development due to: • Respect for authority • Strong but benevolent state in promoting the public good • Emphasis on education • Value of strong kinship ties in creating incentives for entrepreneurship • Emphasis on collective interest • Emphasis on hard work