Development Economics

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

2. Four Major Themes • Historical Understanding of Econ Dev 2) Conceptual Understanding of Econ Dev • Promoting Econ Dev (Role of the State) 4) Critique of Development

3. Golden Oldies • Lewis, A. (1955). Theory of Economic Growth. Chapters 1-4. • McCord, W. (1965). Springtime of Freedom. Chapters 1-2 and 4-6.

4. 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

5. Lewis – The Theory of Economic Growth • 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

6. Lewis – The Theory of Economic Growth • 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

7. Lewis – The Theory of Economic Growth 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

8. Lewis – The Theory of Economic Growth • 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.

9. Lewis – The Theory of Economic Growth Cause 2 Differences in available opportunities • Spirit ofadventure 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

10. Lewis – The Theory of Economic Growth • 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’

11. Lewis – The Theory of 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

12. Lewis – The Theory of Economic Growth • 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

13. Lewis – The Theory of Economic Growth • 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

14. Lewis – The Theory of Economic Growth • 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!

15. Lewis – The Theory 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!

16. Lewis – The Theory of Economic Growth • 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

17. Lewis – The Theory of Economic Growth • 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

18. McCord, W.The Springtime of Freedom. • Bread or Freedom? • How can both go together? • How is democratic development possible respecting human nature and tradition?

19. 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?

20. 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.

21. 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 Men • Greater 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.

22. 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 surelylimitations of authoritative solutions, and even there is no clear correlation between development and oppression of dissents.

23. The Quest for Bread: IV. Finding the Money Critical Challenges 1. Capital Accumulation 2. Agriculture Revolution 3. 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

24. IV. Finding the Money • Key Responsibilities of State (For Democratic Development) • 1. No capital usurpation • 2. Restriction on unnecessary/luxury consumption • 3. Productive Investment of Capital • 4. Strategic Capital Investment into certain areas • Two Main Methods of Capital Accumulation • Inevitable Necessity of Foreign Capital and Aid • 2. Convincing people of the value of saving and abstaining consumption for their future.

25. V. Transforming the Village and Its Land • Four Basic Reasons of Rural Revolution Priority • More Output in rural areas of developing countries • Essential Preconditions for industrial-urban section • 3. 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 • Positivity of Resolute Action •  Overcoming pessimism and fatalism. • 2. Voluntary Transformation • 3. Transform initiated from above: change agents from outsides • 4. Land Reform

26. VI. Industrialization < Balanced Development between Industry andAgriculture>  An essential prerequisite for a sustainable development • Myths of Heavy Industry Centered Development • 1. Higher Efficiency • 2. More Capital Accumulation • 3. Higher Ripple Effects • 4. High Technology Achievement • 5. The Bigger the better. • Problems of Heavy Industry Centered Development • 1. Huge Cost from mistake • 2. Capital Shortage • 3. Constant Unemployment • 4. Hidden Overhead Costs to support the big systems: • e.g. electricity, resource power, schools…

27. VI. Industrialization • Advantages of Light Industry Centered Development • : Decentralized/small scale  A Pluralistic Approach • 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 Role

28. Literary Map “What” Lewis Isbister (growth) McCord Conceptual Understanding Historical Understanding Martinussen –theoretical Dillard – empirical Economic Development Criticism to Development Escobar “How” Harris & Leys - Trade (outward vs. inward looking approaches)

29. Synthesis- Based on Four Main Themes

30. 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.

31. Conceptual Understanding of Econ Dev • 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

32. 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.

33. Promoting Econ Dev (Role of the State) • 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

34. 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.

35. Promoting Econ Dev (Role of the State) • 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.

36. 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.

37. Critique of “Development” • 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.

38. Appendix: • A simplified model of the reproduction processes in a peripheral economy Global Economy Peripheral Economy  +/-   +/-  +/-  Linkage Extraverted Capitalist reproduction (2) Non-Capitalist modes of reproduction (1) Auto-centric Capitalist reproduction • Changes in a Higher/lower direction in (1) Auto-centric capitalist Reproduction • Changes in the interrelationship between (1) and (2)  either expansion of (1) or (2) • Changes in the structuring of (2) (e.g. introduction of capitalist elements in rural areas. • Changes in the distribution of ownership and control between the state and the private sector

39. Appendix: • Three Levels of Peripheral Societies

40. Appendix:Dynamic Profit Structure of TNCs Parent Company 2ndst stage 3rd stage 4th stage 1st stage Money capital Profit remittances, etc. Profit2-Underpricing Profit1-Overpricing Profit3- Margin Branch/ subsidiary Investment Money capital-and loans and equity capital paid up by local investors Money Capital Exports Inputs labour Imports Commodities Production processes

41. 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.