Economic Development. A Thematic School
Economic Development, as it is now understood, really only started in the 1930s when, prompted by Colin Clark''s 1939 quantitative study, economists began realizing that most of humankind did not live in an advanced capitalist economic system. However, the great
early concern was still Europe: namely, postwar European reconstruction and the industrialization of its eastern fringes. It was only some time after the war that economists really began turning their concerns towards Asia, Africa and Latin America.
The post-war
formation of the United Nations- and its attendant agencies, such as the World Bank, the I.M.F., the I.L. O and the various regional commissions - proved to be another important impetus. The commissioning of numerous studies by these institutions led to the emergence of a non-academic strand of development theory.
Development as Growth and capital-Formation Early economic development theory was but merely an extension of conventional economic theory which equated "development" with growth and industrialization. As a result, "stage theory" mentality of economic development dominated discussions of economic development. The general conclusion was that while there were not explicit "linear stages",
countries tended nonetheless to exhibit
similar patterns of development, although some differences could and did persist. The task of the development economist, in this light, was to suggest "short-cuts" by which underdeveloped countries might "catch up" with the developed and leap over a few stages.
By equating development with output growth, early development theorists, prompted by Ragnar Nurkse (1952), identified capital formation as the crucial component to accelerate development. The celebrated early work on the "dual economy" by Sir W. Arthur Lewis (1954, 1955) precisely stressed the role of savings in development. Early Keynesians, such as Kaldor and Robinson, attempted to call attention to the issue of income distribution as a determinant of savings and growth. Even modern Marxians such as Maurice Dobb (1951, 1960) focused on the issue of savings-formation.
The notion of turning "vicious circles" of low savings and low growth into "virtuous circles" of high savings and high growth by
government intervention was reiterated by Hans W. Singer in his doctrine of "balanced growth" and Gunnar Myrdal in his theory of "cumulative causation". Thus, government involvement - whether by planning, socio-economic engineering or effective demand management - was regarded as a critical tool of economic development.
Other economists turned to international trade as the great catalyst to growth.
Social Aspects of Economic Development Although capital-formation never really left the field, the meaning of the term mutated somewhat over time. T.W. Schultz, drawing upon his famous Chicago School thesis, turned away from physical capital accumulation to emphasize the need for "human capital" formation. This led to an emphasis on education and training as pre-requisites of growth and the identification of the problem of the "brain drain" from the Third World to the First (and, as would later be stressed, from the private sector to government bureaucracies). W. Arthur Lewis and Hans W. Singer extended Schultz''s thesis by arguing that social development as a whole - notably education, health, fertility, etc. - by improving human capital, were also necessary pre-requisites for growth. In this view, industrialization, if it came at the cost of social development, could never be self-sustaining.
However, it was really only in 1969 that Dudley Seers finally broke the growth fetishism of development theory. Development, he argued, was a social phenomenon that involved more than increasing per capita output. Development meant, in Seers''s opinion, eliminating poverty, unemployment and inequality as well. Singer, Myrdal and Adelman were among the firshands to acknowledge the validity of Seers''s complaint and many younger economists, such as Mahbub ul Haq, were galvanized by Seers''s call to redefine economic development. Thus, structural issues such as dualism, population growth, inequality, urbanization, agricultural transformation, education, health, unemployment,etc. all began to be reviewed on their own merits, and not merely as appendages to an underlying growth thesis.
Structuralism and its Discontents Before Seers''s complaint, many economists had already felt extraordinarily uncomfortable with early development theory and the implicit assumptions behind "stages" reasoning. A new (or old - depending on one''s vantage point) idea began to germinate - what may be loosely termed "structuralism". The "structuralist" thesis, succinctly, called attention to the
distinct structural problems of Third World countries: underdeveloped countries, they argued, were not merely "primitive versions" of developed countries, rather they had distinctive features of their own. The newer structuralists, in contrast, sought to bring attention to the differences. Albert O. Hirschmann (1958) was one of the early few who stressed the need for country-specific analysis of development.
The UNCLA economist, Raúl Prebisch, formulated the famous "dependency" theory of economic development, wherein he argued that the world had developed into a "center-periphery" relationship among nations, where the Third World was regressing into becoming the producer of raw materials for First World manufacturers and were thus condemned to a peripheral and dependent role in the world economy. Thus, Prebisch concluded, some degree of protectionism in trade was necessary if these countries were to enter a self-sustaining development path. Import-substitution, enabled by protection and government policy, rather than trade and export-orientation, was the preferred strategy. Historical examples of government-directed industrialization, such as Meiji Japan and Soviet Russia, were held up as proof that there was not only one path to development, as had been implied by the cruder "stages" theories. "Neo-Colonialism", "core-periphery" and "dependency" were the catch-words of the day.
However, as time moved on, these policies seemed to fail to yield their promised fruit, and a Neoclassical (or, more accurately, Neo-Liberal) countermovement began to gain more adherents. Their thesis was simple: government intervention did not only not improve development, it in fact thwarted it. The emergence of huge bureaucracies and state regulations, they argued, suffocated private investment and distorted prices making developing economies extraordinarily inefficient.
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