Lecture Topic Economic Development May 27, 2008

1. POLS/ECON 426 International Political Economy Lecture TopicEconomic Development May 27, 2008 Professor Timothy C. LimCal State Los Angelestclim@calstatela.edu

2. Dynamics of the World EconomyEconomic Development what isdevelopment? “Like many concepts in the social sciences the concept of development remains ill-defined and contested.” Yet, to have a serious and substantive discussion of “development” requires that we have a clear-cut idea of what is meant by the term, so … what isdevelopment?

3. Dynamics of the World EconomyEconomic Development what isdevelopment? The standard measure of development is economic growth, and more specifically GDP growth This approach emphasizes economic variablesexclusively and focuses on aggregate growth In the standard definition,any increase in GDP signifies“development”

4. Dynamics of the World EconomyEconomic Development what is development? Development-as-GDP-growthhas several advantages: Increasing GDP can be considered a prerequisite to social and social progress; equity is a function of growth GDP is well understood and easily measured (in most cases); it allows for meaningful cross-national comparisons GDP 1 2 GDP tells us that country A is more developed than country B Country A Country B

5. what is development? Many critics have argued that GDP growth, by itself, is a poor indicator of development They argue that any conception of development must include a number of other variables, such as: Recognizing the limitations of GDP, critics developed an alternative, known as … Equity Health Education

6. Dynamics of the World EconomyEconomic Development what is humandevelopment? human development index High █ 0.950 and over █ 0.900–0.949 █ 0.850–0.899 █ 0.800–0.849 Medium █ 0.750–0.799 █ 0.700–0.749 █ 0.650–0.699 █ 0.600–0.649 █ 0.550–0.599 █ 0.500–0.549 Low █ 0.450–0.499 █ 0.400–0.449 █ 0.350–0.399 █ under 0.350 █ not available also known as HDI

7. Dynamics of the World EconomyEconomic Development what is humandevelopment? This video, produced by the UNDP (the creator of the HDI), provides an overview of the human development concept For more information,go to the followingwebsite: http://hdr.undp.org/

8. Dynamics of the World EconomyEconomic Development what is humandevelopment? HDI versus GDP The use of GDP per capita versus the HDI is not just a statistical exercise “Because the HDI measures social factors it will give higher rankings to societies that have a more equal distribution of wealth and invest in social services. In contrast GNP per capita can rank societies that have a large amount of wealth highly no matter what its distribution amongst the population.” Final Point: The debate over the best way to define development continues. Most agree, however, that development is more than just GDP growth

9. Dynamics of the World EconomyEconomic Development theoretical perspectives “The political economy of development has initiated a number of theoretical debates and controversies.” Not surprisingly, the disagreements largely reflect the same theoretical divisions we have been discussing all quarter For our purposes, though, it might be better to divide the debate into two basic schisms: Internal causation theory External causation theory 1 2 You should already have a good sense of how development is explained from these two perspectives

10. Dynamics of the World EconomyEconomic Development theoretical perspectives outside forces Underdevelopment is the result of external forces that constrain a society’s efforts to develop. Underdevelopment is primarily a product of exploitation, of the rich oppressing and hurting the poorer countries of the world. “The causes of underdevelopment are to be found in the underdeveloped society and the solution to underdevelopment is therefore to be found at the domestic level” Internal Causation Theory External Causation Theory

11. Dynamics of the World EconomyEconomic Development What is the authors’view?

12. Dynamics of the World EconomyEconomic Development “From the perspective taken in this book, both internal causation and external causation theories are flawed. A complex phenomenon such as development is not attributable to forces arising from a single level of analysis. National societies are … integrally linked to an emerging global political economy…. [but] external structures are mediated through internal processes in ways that are not automatic thus raising serious questions about the external causation approach” + the authors, therefore, suggest anintegrated approach

13. Dynamics of the World EconomyEconomic Development consider the development ofSouth KoreaandTaiwan

14. Dynamics of the World EconomyEconomic Development South Korea and Taiwan utterly transformed their economies and societies in less than two generations Seoul 1950 Seoul 2005

15. Dynamics of the World EconomyEconomic Development South Korea, which was one ofthe world’s poorest countries inthe 1950s, is now one of the richest In terms of HDI, South Korea is26th in world, with a score of .921:it has caught up with most of theOECD * No figures are available for Taiwan, but it’s rank would be similar

16. Dynamics of the World EconomyEconomic Development how did Korea and Taiwan achieve theirsuccess?

17. Dynamics of the World EconomyEconomic Development the story of South Korea’s and Taiwan’s is complicated and subject to intense debate Some things, however, are very clear • both economies successfully pursued a policy of export-led industrialization (or export-oriented industrialization, EOI) • both economies also simultaneously pursued a strategy of import-substitution industrialization (ISI) and infant industry protection • both economies limited and/or carefully managed FDI • in neither economy were domestic prices determined by the “invisible hand” of market competition; instead, the state played a key role • both economies were heavily protected through both tariff and non-tariff barriers, and subsidies were pervasive

18. Dynamics of the World EconomyEconomic Development some very clear aspects of South Korean and Taiwanese development (continued) • in general, both economies had effective, highly interventionist, neo-mercantilist and non-democratic states (during the period of most rapid economic growth) • neither country accepted passively its position in the global division of labor: both quickly moved from low skilled, labor-intensive, and low value-added sectors to high skilled, capital intensive, and high value-added sectors • both countries had a special relationship with the United States and occupied important positions in the geopolitical framework of the Cold War era • both countries have a well educated population

19. Dynamics of the World EconomyEconomic Development the upshot?

20. Dynamics of the World EconomyEconomic Development the upshot? Korean and Taiwanese development is a product of both internal and external factors. It reflects liberal principles insofar as international trade was integral to their success. But it also unequivocally reflects the heavy and very visible hand of the state. Events since 1997 show, however, that both economies remain vulnerable to external forces and processes: they are part of the global economy, which is governed by both market forces and power.

21. Dynamics of the World EconomyEconomic Development majordevelopments The last, historical, point about South Korean and Taiwanese development must be highlighted: their development occurred during a relatively opportune time, but … the times have changed what are the two major periodsor historical projects discussed by the authors? • development project • 1947-1981 • reliance on the state • regulation good • focus on national market • death of classical liberalism • discourse of managed trade • globalization project • 1982-2006 • reliance on the market • regulation evil • focus on global market • death of keynesianism • discourse of free trade

22. Dynamics of the World EconomyEconomic Development majordevelopments what is the significance of these two periods with regard to questions of development? is it harder to develop today than in the past? why or why not? why did the era of the development project end? is the era of the globalization project ending? what is the alternative? Always remember:Things change, and they usually change for a reason. In IPE/GPE, one key mechanism or reason for change is the double movement

23. Dynamics of the World EconomyEconomic Development review what’s the double movement?

24. Dynamics of the World EconomyEconomic Development what’s the double movement? action. deliberate, planned creation of an unfetteredliberal market. consider the washington consensus reaction. political response to the suffering caused by the liberal market the simple answer: action-reaction

25. Dynamics of the World EconomyEconomic Development Much of the history of the international and global political economy in the 20th century (and early 21st century) can be understood in terms of the double movement The embrace of Marxism and communism in the early 1900s, the rise of fascism in the 1930s, the emergence of the welfare state, the rise of fundamentalism, and the present day “alter-globalization” movement All were responses to the development, (re-)expansion, and deepening of capitalism

26. Dynamics of the World EconomyEconomic Development the upshot?

27. Dynamics of the World EconomyEconomic Development the upshot? • development takes place under very different conditions and circumstances; what is possible in one era may not be possible in another era • development is an inherently political process • the globalization project has elicited a political reaction, one result of which is a movement toward new forms and modes of development • these include sustainable development (a new form) and an increasing role for international and non-governmental organizations in promoting national development (a new mode of development)

28. Dynamics of the World EconomyEconomic Development the upshot? • another sign of change is in the discourse of development • the discourse of liberal economies and free trade remain strong, but we are seeing the emergence of a new discourse focused on poverty reduction and human development • we are also witnessing a shift--albeit nascent--away from “pure” market-based solutions toward a broader, more inclusive approach involving international cooperation, global governance, and people- as opposed to state-based solutions • this change is partly reflected the redefinedrole of the world bank

29. Dynamics of the World EconomyEconomic Development the developmentdiscourse “workingfor aworld free ofpoverty” solving poverty: the world bank’s newmantra

30. Dynamics of the World EconomyEconomic Development the developmentdiscourse • the world bank’s shift in focus came after years of pushing forth an agenda of neo-liberal reforms through “structural readjustment” • beginning in the mid-1990s, the bank has been focusing on the new goal of sustainable development and poverty reduction as primary goals • the bank now defines its mission in terms of “investing and empowering poor people to participate in development”

31. Dynamics of the World EconomyEconomic Development the developmentdiscourse key items on the world bank’s agenda now include … • overcoming poverty and spurring growth in the poorest countries • ensuring food security by building “productive and development-oriented” safety nets • expanding access to health care and directly combating HIV/AIDS • establishing micro-credit programs • providing support for primary education, including programs to reintegrate “child-soldiers” back into society and to provide better educational access for girls • promoting sustainable development

32. Dynamics of the World EconomyEconomic Development the developmentdiscourse critics remain skeptical of the bank and are particularly concerned with the bank’s decision-making process they point to the appointment of paul wolfowitz in 2005 has the bank really changed? what do the authors say?

33. Dynamics of the World EconomyEconomic Development the developmentdiscourse the authors argue that the bank’s role has changedthey assert that “much criticism of the bank is oftenout of date at the same time, the bank is is clearly subject toconstraints, both due to the influence of dominant members, but also to the broader constraints of the global financial system World Bank Group President Robert Zoellick

34. Dynamics of the World EconomyEconomic Development the developmentdiscourse what ever one’s view of the world bank, it is important to recognize that both the rhetoric--and, to a significant degree--the actual lending policies of the bank have changed this change reflects two basic processes the failure of neo-liberal policies to solve the “development problem” the emergence of alternative voices in the development debate 1 2 where have the alternative voices come from?

35. Dynamics of the World EconomyEconomic Development the developmentdiscourse there are, of course, very many alternative voices, but … one good representative is bono bono has been heavily involved in a variety of issues, but his work on debt relief stands out

36. Dynamics of the World EconomyEconomic Development the developmentdiscourse • more generally, we can argue that civil society is playing an increasing important role on specific issues, especially development, in the global political economy • the role of civil society, however, is complicated • it is sometimes direct--as in the work non-governmental organizations do--but also indirect in terms of influencing public policy, both nationally and internationally, and in reshaping the discourse on development and other issues • the increasing role of civil society also complicates the dynamics of the global political economy how this impacts the process of development remains to be seen