Liberal Interpretations of Conditions in Developing Countries

1. Liberal Interpretations of Conditions in Developing Countries May 5, 2013

2. Liberal Understandings Where world systems theory points to global structural problems as afflicting developing nations, colonialism points to the past, and dependency theory argues for an understanding of problems that are tied to outside sources of capital, liberal theories do not blame the world economy, capitalists, or outside sources of capital for problems of underdevelopment.

3. Liberal Understandings Rather, liberal understandings point to: • Failures to pursue one of several proven development strategies • Failure to adopt necessary policies • Natural disasters or other natural disruptive events • Resources curses

4. Liberal Understandings These judgments are based on two sets of observations: • Understandings of how developed countries in the West undertook the development process in the 19th century. However, important to understand differences, in that development during that time took place in the absence of many competitors, leading to a model of development that started with the creation of a heavy industry sector (steel, machinery, railroads) • Observations of how nations in the 20th century developed, observations of what those nations did when successful compared to their choices when not successful, and comparisons between successful nations and those that have not successfully developed.

5. Strategies and Policies • Market liberalization– allow markets to make decisions about what to produce and at what price, and to allocate labor and resources • Connect to international market • Develop internal markets • Develop capital internally or encourage investment from external sources • Combat corruption, monopolies and oligopolies • Transition state out of fields of economic production and resource allocation • Emphasis on transparency • Start with less capital intensive industries, then move up the value added ladder

6. Development Strategies Four Tigers (or Four Dragons): • Korea, Hong Kong, Taiwan, Singapore • All in East Asia, all developed from 1960s-1980s, all experienced very high rates of growth • Developed under authoritarian regimes • Important role in development played by governments, in terms of either mixed economies (Taiwan) or government support for large conglomerations (Hong Kong, Singapore, South Korea) • All though of as demonstrating a particular development model, but there are also important differences among them

7. Four Tigers • South Korea: steel and automotive industries for export: most like industrialization in 19th century in terms of emphasis on heavy industry and presence of large amounts of capital; with the difference being the export component • Taiwan: light industrial goods (toys), then electronic consumer goods • Used Import Substitution Industrialization (ISI): use of tariffs and other trade barriers to develop industries to make products otherwise imported, • In tandem with export-led industrialization: concentrate important sectors of the economy to creating goods solely for export • More like new model; difference being heavy state involvement in process • Hong Kong: light industrial goods, banking and trade– service industry makes it different • Singapore: trade– not as much manufacturing

8. Four Tigers All were assisted by provision of security needs from the outside, but differently between the two sets of Tigers: • Hong Kong and Singapore were colonial outposts that developed in large part because of an ongoing heritage of free trade, as well as benefiting for significant periods of time from military protection and general support from colonial “parent”. • South Korea and Taiwan an important part of US Cold War security network and benefitted from US security presence as well as from US foreign aid.

9. PRC Much like Taiwan in development model, though with some differences: • Did not begin to take off until state instituted important liberalizing market measures in the 1980s and 1990s • Authoritarian government and strong state that continues to have important economic decisionmaking powers and the continued existence of some state owned enterprises– gradual process of withdrawing from such ownership • Large amounts of foreign capital inflows (initially from Taiwan) • First concentrated on export led development, then concentration on manufacturing for internal market • Very high rate of growth • Use of market tools also bringing accompanying problems: uneven geographical development, income and wealth inequalities, environmental problems, return of corruption

10. India Developed in the context of: History: • Former colony that had been left in an impoverished condition by Great Britain • Non-aligned during the Cold War, though often closer to the Soviet Union than the US—humanitarian aid from West ,but little foreign investment until after end of Cold War • Conflicts with both PRC and Pakistan • An established, though sometimes shaky and corrupt, democracy • Movement from a mixed economy that had delivered little growth to a more market-oriented economy, beginning with changes in the mid and late 1980s. • Import substitution industrialization, particularly automobiles, computer equipment, other electronics • Export sector concentrated on service industry, particularly software development and call centers

11. Other States: • Malaysia, Thailand: attempted to follow Four Tigers in state-directed, export led development strategy, but not as successful due to problems of corruption and internal conflicts • Vietnam: following the Chinese model of reform in the context of continued authoritarian control, use of cheap labor for export-led development, and gradual withdrawal of state from economic activities • Pakistan, Bangladesh: low level of internal resources, internal instability that discourages foreign investment, as well as violence (Pakistan re: India, Afghanistan) and natural disasters) Bangladesh.

12. Other States • Brazil, Mexico: ISI strategies, market reforms but continued existence of some aspects of mixed economic model with important state participation; reliance upon oil exports to build up capital. • More modest results than Four Tigers, China and India, in part because of political instability and violence associated with organized crime and the drug trade.

13. Other states Nigeria, Middle Eastern nations: importantly afflicted by resource curse, in which dependence upon exporting a natural resource allows the state to fund itself, but does little to develop the country internally, nor to encourage transparency or market reforms.

14. General Differences of Strategy • How involved should the state be: only regulate lightly, regulate heavily, or be involved in economic planning? • ISI to develop through cultivation of an internal market or Export led development? • Heavy industry or light industry/service sector first? • Emphasize the accumulation of capital for industrializing purposes and thus not invest very heavily in consumption (wages, social services) and take advantage of cheap labor, or spread capital between industrialization and consumption to improve the standard of living of everyone. • Internal vs. external sources of capital • Develop first, then democratize, or democratize first, then focus on development?