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Class 13 and class 14 reference 1 is development economics still relevant by singer

Appendix

ls Development Economics

StillRelevant?
A.W S;"gd

h

onc sense, our tidet question as to d:e relev"ance of devclopmcnt cconomics acmally
answers irsdf Thc dcvclopment problcm has ccnain-ty not disappcarcd On the conuary,

dre economic g4p dividing

ple ia dre world

o&y

rid

aad poor cou.nui:s has


wi&ned; thcrc

are rnorc poor pco-

than evcr bcfore; ttre problcm of A-&ica! marginalization is bc-

coming incrcasiagly urgenq aad many dcvclop.ing couatrics arc rackcd by civil wa-rs and
tribal conflicts r.hat are scming back thc causc of dcvclopmcnt. The lisr gocs on
and on. Thus, a:r u:rdcrstalding ofrhc difiorldcs of devcloping countries and rhc dcsigning of policies that scek to providc a solution to thc dcvelopmcnt problcm are certainJy sdll ncccssary-more neccssary, in frct, d:an gycr.

But rhose likc Dccpak [^al who spca-k of &e'dcmise" of drvdopment cconomics
mean somcrtriag diFercnr. Ttey do nor contend drar the deldopment problem has been
solved oor that it is oi cou:sc ro be solvcd, but rethcr rhat devdopmcnr cconomics----or
at lcasr d:c old srylc of devdopmenr cconomieis ncittrer a neccssary nor a suiablc tool
solving that problern. This contcntion holds rlar traditiond dcvelopmcnt
cconomics was misguidcd aad that it rtrus misled developing counries into adopting
harm-fuI policia. It also holds tiet thc nrles of uaditional devclopmcot cconomics wcre
zupposcdly ideudei to rhose of gencral economics (that is, that thc "sound fua&mcnt"k" fpt supponed growth in dcvdopcd coultrics werc secn as applicable and rccommcndablc to devdoping counuics ["monoeconomics"]). I-n the prcscnt paper wc shall bc
considering both of drcsc criticisms.
'What
arc thc specifc accusarions against thc old-stylc developmcnt cconomics? ln
the 6m placc, rhe old approach supposcdly assigncd an orcessivc rolc to governmcnt and
placed orccssivc faid: i.n govcrnmcnt plenning and in thc wisdom of govemmcnt inrervention. Therc is cerainly much truth in tht contcndoo insofu as it refers to thc early
dcvelopmcot economists. But wc must understand dc historiel conten in which devdopment cyears ago at dre cnd of Wodd V'ar II. People like Roscnstein Rodan, Arriur Lcwis,
Gunnar Myrdd, R:gnar Nurkse, and RariLl Prcbisch wcre strongly infuenccd by rtre succcssfi:l U.K cconomic planning oEcricncc during dc war, by drc w:r zucccss of rhc ccnaally planned Soviet Union, b7 ttrc Kcynesian demonsrarion of rle possibi.liry of an

to&y for

I lastitute ofDadopocat Studics u dc UuivuirT of Susst* EogLrrd-

1


acrive intervendonist macrocconomic fi.rll-employnent poliry, by *re qperienccs of
Rooscvcltt New Dcal, and by thc crcadon of a social-wclf:rc sta.re in the United
Khgdom along rhc lines of rtrc Bcaeridgc Rrpon h rhe oprimistic qpirit of I 945 it was
assumed rhat such successcs and preccdeaa would bc readily rcplicablc throughout rhe
world. As for marLct forces, it was partidly a question of emphxizing markct failurcs as


sremming &om exrernalities or Fom imperfcct competition aad partially (pcrhaps maialy) a marer of assuming that irr devdoping counaics, markct forccs simply did not erist
and had first to bc crcarcd by govcmmcnt acrion. Again, in drc circum*aaccs of de latc
1940s and tle carly I950s therc oristed morc jusdication rharr today for bod: of dresc
assumptions.

Wherc do wc now $and on this issuc? Vcry few-evcn among thc most ardcnt advocates of rtrc application of markct principlcs to developmcnt-would dcny thar there

ariss an i'nponant role for drc stetc in cconoirnic dcvelopmcnc The govcmrnenr has ro
provide thc following rhc ir:-&astrucnrral invcsraent rhat by de6nition is not normdly
profitablc for priretc inva*ors to underrakc; drc nccdcd sociel opcndirurcs on hcalth serviccs, education, sanitation, and thc likc (thc imponancc ofwhich is in facr increasingly cmphasizcd to&y); ttre esscntial Famework oflaw and ordcq and thc rnacroeconomic
conditions by means ofwhich rhe cconomy is kcpt on a course of srcady growrh or cxpansion. All of rhasc starc obLigarions are undisputcd- The only diqputcd fuaction is *re
dircct production ploccss ard rhc o.tcnt to which thc statc should involvc irelf in ir The
early dcvdopmcnt cconomi*s would rcadily havc agreed thar thc uadispurcd functioru
arc vasdy morc imporralr than rhis lasr disputcd fi:acdon. Thus, just as tlcre can be no
disputing drat thc devdopmcnt problem is as crucial as gycr, thcre can bc no question
6at the un&putcd govemmcnt functions arc morc important r1:an evcr, cspccially in rhc
arca of human development fuough hcdrh, education, and orhcr social invcsunena.
Even rhe chicf advocarcs for fie application of markct principlcs, such as thc IIvIF and
'World
Ban-k undcr the Washington conscnsus, not only dcal with govcrnments and op
cr*. $ye"gh govcmments but aho are thcmsdvcs increasingly emphasizing thc importancc of rhc aforcmcntioned uadispurcd govcrnmenul fuactions. They ccnainly would
not speak of a demisc of govemment, whatcver they may thin-k of &e dcmisc of developmcnr cconomics.
Thc criticism thcn has acrually revolvcd not so much around whether the carly dcvdopment econornics overrated thc importancc of governmcntal fi.:actions as around
thc acmal abiliry of govemmeats to ca.rr), out thesc assigned functions. The more cxrrcme version ofcriticism wouJd argue rtrat govcmmcnts arc constirutionally incapablc
of carrying out such functions, that governmcnts by rJrcir vcry narurc arc corrupt, incompetent, and roo burcaucratic ro understand rtre nec& of rhc economy. Thcsc morc
ocreme critics rhen subdividc into rwo smallcr branches the lcs ecrcmc branch wou.ld
condude rhar governmcnt rcform is rtrc most importalt task ofdevelopmcnt economics, dcreby drasrically shifting rJ:e focus of devclopment cconomics but not nccessarily resulting in rhc larter's 'demisc;" thc morc cxtreme branch would dcspair of wcr
rcforming govcmments a.rld would "keep rhcm out of devclopment" altoge&er (which


ln rurn, dre mildcr version of criricism would bc to admir
market Eilures bur rc argue thar governmcnr fai.lules arc worsc thaa markct failurcs arrd
r-hat dcrcforc kecping governmcnts out of devdopmcnt araou.rrts to choosing drc lcsser ofrwo evils. Currcnt economic-analysis techr:.iqucs arc unablc ro rc$ this contendon
by means of comparable compositc rDcasurcrDcDls of marLct failurcs and govcrnmcnr
fiilurcs, nor has rhc bcst rechaology for corrccting markcr f:ilures bccn suficiendy dari6cd, and rhus by and large, in dcvdopment analysis applied to parricular countrics ir
remairu a mancr ofjudgmcnt whc&er ro pur gsycruncnt rcform or marLcr rcform 6rsc
an eclecdc vicw would be that bod havc to bc n&lcd and that there is no need to dcbatc thcir rdativc imporrancc.
Thc position ofde carly devdopmcnt cconomiss on drc qucstion ofsatc acdon vcrsus markcr forccs is dosdy rclated to their bciid ia thc importancc of "anroularivc causadon" (Myrdal's tcrm). This term impliu that devdoprnent is largdy a mancr of dre
inrcraction of bcne6cid cirdcs whereby al upward movcmcnt or improvc.ment of sector
A or facor A scts ia motion al upward movcmcnt i-rr sccror B or facor B, whicl in rurn
contiaucs to sprcad to othcr scctors or Econ, wirl a positirc ba&wash cfftcr also on rl'rc
original Ector A It will bc rcadily scen rhat rhis view of "cverything hanging togctficr"
i.n a systcm of cumuladve causation or bcucfcial cirdcs lies bchind such ideas as drc
scarch for forward and backward lhkaga (cmphasizcd by Albcn Hirschmaa), i.nput-output srudics, and thcories of balanced grorrh (associatcd with thc namc of Ragnar
Nurksc). Thc belicf in cumulativc causation or bene6cial circles also implics thc possibiliry of irs oppositc-that is, thc oristcnce ofvicious cirdcs i.rr which nor.hing moves bccausc evcrirtring has ro wait for acrioa somcwhcre elsc. ln assuming rhc possibiliry of
such vicious cirdcs, or "poverty raps," ia developing countries, dwdopmcnt economisrs
wcrc dcarly influcnccd by thc Kepesian dcmonsrration of rhc possibiLiry of "uadcrcmploymcnr equilibrium" aad by his view that somc external forcc such as governmcnt inrcrvenrion would bc needed to brcek rhe vicious cirdc and to create a bcnefcial circle of
erwhile ortrers looked ro tecbaolory and rcscarch and dcvdopmcnt or to foreig:: aid or
orher cxtcmal-capiul inflows but govemrncntal irucrvention, even if Iimited m fucal and
monetary policy, rcmaincd rhc primc merhod, in rhe vicw of thc early devdopmcnt cconomisa, ofbrcaking drc vicious cirdc and cscaping rhe povcrry trap.
is not a common stance).

Arroticr accusadon lcvcled against thc early devcloprncnt

economisc
phJsica.l-invasmrent rates as thc dc-

is rtrat drey conccnretcd too muctr on savings a.nd
terminants of grovnh.---on invcsring ia concrcte rather rtran

h people-and

drat this em-

phasis lcd to rhc ncglecr of other factors tlat also dcterminc gror*th (such as
humaa-capiul improvemenrs, rcchnologiel advaaces, riscs in rotd factor productiviry,
iacreasing remrns, and de like). They are also criticizcd for idcntifying dcvelopment too
much widr cconomic grow*r aad for ignorhg kry elcmcnts such as ilcomc disrribution, poverry rcducdon, environmental protection, access to educarion, and so fonh.
How much rruth was dcrc in these accusations?


Thc maiasuy of dre old devetopment cconomics was de Harod-Domar formula
is rruc rtrat tbe H-D numerator docs specifical.ly mention thc rarc of physieJ
invcsraent, bur acention should also bc paid m irs dcnominaror (*rat is, to rtre capitaloutput ratio). The capital-ourput rario (or invcstment pmducriviry in tcrms of srreams
ofourput) servcd as a catchall into which all thc negleced factors could bc duown: im-

(Il-D). It

proyemcnrs in human capital (a betrcr-cducatad and hcahhicr labor forcc) a-lso inoeasc
the productiviry of invcstrncaq as do tccblologie.l progress and increasing rerums.
Thus, in formai rerms dre criticism is not rcdly justified sincr dl of rhc allegedly ncgleced factors could in Ect be accomrno&red ia rhe ovenll category ofdre capial-ourput rado. But drc fact 6at dre rare ofinvcssnent was de onJy factor specificaily idco.tiicd
in H-D wherear all rhc orler factors werc broadly subsumed (and ro some ertcnt sup
pressed) in rtrc capiral-outpur ratio does give somc subsr:acc to the criticism of such
statemcnrs as Arthur Lwis! dedaradon rhat raising rJrc savings and investmcnt ratc ftom
5 perceat ro 12 pcrccnt w:s "dre ccntra.l problcm ofeconomic dcvelopmcnr" Tod:y we
amiburc much grcater imponancc to all thcse othcr growfi factors, aad a modcrn vcrsion of H-D would makc thcm aplicit at 6c sarne levd of cmphasis as the rarc of inve$mcnt, Even so, rhe early devdopment economists werc by no mears unawarc of rhc
importancc ofthcsc other growth factors and in fact sresscd rlem in rhcir verbal expositions. This awarencss on thcir part recasts thc criticism inro thc assertion rhar *re early
dcvclopment cconomia simply did not havc rIrc capaciry to producc an adequate modd
for re0ccdng a.ll thc various factors in cconomic grorrth. In this rasprct much progrcss has
bccn madc, and rherc is no lacl to&y of modcls t-hat arc morc satisfacory.
The orher accusation-rhat development was too much idcntificd with cconomic
growth-is much morc jusri6ed- Thc H-D formula trcats thc rete of growth of pcr capita GNP as thc indepcndcnt ruiable. But incrcasingly, a dearcr distincrion is now &awn
bctw'ecn mcans and ends. The 6nal objecrirc of drvdopmenr is surcly morc then jusr a
gro*r:h in per capira GN?. In rhe currcnt discussion fie rccognized cnd ofdevdopmcnt
is de6nd in such terms as rcduction of poverry, satisfaction ofbasic nec&, oeation of
glcaer oppommities for hurnan fi:lEllrnent through acccss ro work oppomrnities or social serviccs, aad ukimarely an ilcrrasc in human oppom:nities or a wider rangc of
choicc. Thus, dre t tNDPt Hwnan Darhpmcnr ?4parr deEnes its ob)ecrivc of "sustainablc human dcvdopment" as "rJre proc ofcnlarging pmple! capabiLities and droiccs so
"
as to cnablc *rcm bcccr to sarisS ttreir own necds." Thc 6rst approach ofrhe early dcvdopment economists was dcarly too economistig as is indeed indicatcd by rtre term irsd.E developmcnt rcanomia.The new istas opcned up byJohn Ksyna and Colin CbLrk
h measuriag artd comparing nationd incomes provcd too tcmpting for the carly dcvdopmcnr economists not to base their discussions primarily on what happened ro GNP
The ba&lash ag?.inst this approach was not long in coming fic seminal artidcs werc
fiosc by Dudley Secrs on 'The Mea-ning of Devdopmcnt" and "Thc Dcthroncmcnt of
GNP" !7ith d:is baclcwash camc also a shift &om dcvdopment. cconomics to dcvelopment srudics-a recognition of edrical, social, and politica.l clcmcnts ia judging how to
approach or mcasurc the truc objective ofincrcasing *rc raage ofhuman oppomrnitics.


Rarler ironica.lly, rhc morc octremc ba&lash aga.inst dc early dcvdopmcnr economics-ia drc form of rhe neodassiel monocconomic 6s11s1grrev9[utis1-is in a way
a thro*tack to drc vcry carly cconomisric stagc of drvelopmcnt cconomics. Thc IMF and
Vorld BanI sta-bilization aad strucn:ral adustmcnt prograrns are crid.i,ed for puttiag
too much cmphasis on econom.ic growdr and for lacLiag a 'human facc." The neodxsical &fcnsc is that econonic growttr is esscntial for povcrry roducdon and ofier social
improvcmenrs, thar "a rising ride lifts a.ll boaa," and rhar rhe calcc must 6m bc produccd
bcfore ir c:n bc dimiburcd Nobody doubts drat, or.l'rcr thing bcing equal, growth is bctrcl r.han no growth arrd rhat it provides (at least potcndally) thc rcsourccs to ful-fill thc
ruc en& of dcvelopmcm Ncvcnheless, rtrcrc crists considerablc doubt in currcnt devdopmcnt cconomics about frc implicd casc wirh which cconomic rcsourc:s crcated by
growth arc being convencd into human devclopmcnt Thc patttrn of gowrh is now considcred ro bc as important as, (or morc iurponaar) rhan Sc rarr of growth, and cenain
parterns of gorrth arc viewed as hosdl.e to radrer than contributory to humaa develop
menr Undcr dc impact of such criticism (which is similar to drc criticism of dre early
cconomistic interpreudon of H-D), rhe Brcnon V'oods Institutions and the followers of
rtre lTashington clnscnsus havc bcgun !o pay grearcr anention to poverry a-llaviadon,
hu-rnan indicators, and &c likc. In rhis way, rtre history of de"dopmcnt economics can
bc trcatcd as comprising rwo similar cyclas: 6m, ernphasis on GNP growrh in t}lc 1940s
and 1950s followcd by emphasis on disuibution in dre 1960s and l9l0s and sccond, rcnewed cmphasis on GNP gromh in *rc ncodassicel countcrrcvoludon during rhc 1980s
followed by rcnewed emphasis on human devdopment and poverry a.lleviadon irr r}le
1990s.

Still remaining for discussion hcre is rhe criricism tfiar dcvdopmcnr economisc have
given mistakco policy guidancc to devclop.ing couatries. This criticism ccntcrs on rhe
srrategr of impon-subsriruting iadustrialization (ISI). Hcrc again, howcver, it car bc argucd that tJrc srand .,ken by rhc main$rcan of tle early devclopmcnt economists was
corcct for the cilcu-trrstaaccs of frc &y and th:t drc lcssons ofdevelopment otpcricnce
have bccn on their sidc. Cenainli, rtrc succcssfi.rl dgers have indusuializcd, and rJ:cy now
producc domestica.lly a vast rangc ofpreviously imponed manufacn:red producrs, whilc
marginalizcd A-6ica is lagging borl in indusaializadon and in r.he capacity to homc-producc cssential producrs rhat musr condnuc ro bc imponcd- Wlrcrc rhc carly devdopmcnt
cconomiss may have gonc wrong was in *reir placiag tm much cmphasis on impon suL
stirution and not cnough on indusrrializarion. In other words, thcy did not foresec dre
scope for manuEcn:red expor$-but then, who really did, or could haw, in 1945?
Moreover, 6e prcsent neodassical demonization of drc stntcry of import-substituting industria.liz:tion, givcn the neoclassicisrs' approva-l of increxirrg domasric food producrion
and rhc production of agricultural raw matcrials, is perhaps morc a criticism ofindusrialization than of impon subsdrution.




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