Presentation on theme: "Theories of Development and Underdevelopment"— Presentation transcript:
1 Theories of Development and Underdevelopment DEVELOPMENTALISTTHEORIESCh. 5 in Cypher & Dietz
2 DEVELOPMENTALIST THEORIES of ECONOMIC DEVELOPMENT BASIC CHARACTERISTICS:Post-WWII Pioneers of Development EconomicsLoose school of thought; less theoretical; more historical and practical approach to the question of how to developOptimistic, believe in the inevitability of development as a linear process that all nations go throughEmphasize large-scale industrialization as the key to the development processProfound respect for market forces yet support large-scale government intervention to force economic growthSimilar to Keynesians in regard to advocacy for government intervention and also that poor economic performance reflects a lack of aggregate demandLEADING THEORETICIANS:Theory of the Big Push: Rosenstein-RodanTheory of balanced growth: Ragnar NurkseUnbalanced Growth: HirschmanGrowth with Unlimited Supply of Labor: LewisStages of Growth Theory: Rostow
3 Theory of the Big Push Paul Rosenstein-Rodan hidden potential in developing economieslarge-scale industrialization and infrastructural development is keymore investment is needed in many places at one timebut this cannot be left to the market due to information and appropriation failures (“externalities”)the big push needs to come from the state to escape the low-level equilibrium trap
4 Theory of balanced growth Ragnar Nurkse export pessimism: exports cannot be depended upon as the source of growthmassive injection of new technology, machines, production processes is the key to developmenthence need for domestic industrializationlarge scale industrial investments (i.e. expanded supply) would also generate large scale demand, hence leading to:BALANCED GROWTH
5 Industrial Linkages & Unbalanced Growth Alfred Hirschman Resource constraints in developing countries necessitate prioritization as to where to invest first;the big push should be only for a limited no of industries, hence initially unbalanced growth;this will initially result in unbalanced growth such that inducing development in key sectors first will create overcapacity here; cheapening their output due to economies of scale;this will stimulate upstream investments:eg. oversupply electric power; as electricity becomes cheaper this will stimulate investments in those sectors that use electric power in big amounts.The key sectors for initial investment should be determined on the basis of industrial backward and forward linkages.
6 Growth with unlimited supply of labor Arthur Lewis main difference between North and South: the relative weight of agricultural versus industrial production and employment.Hidden potential of developing countries for growth lies in unlimited supplies of rural labor inherent in their large agricultural sector ready to be pulled into the modern urban sector.in the South, coexistence of the two sectors is dualistic such that:agricultural sector provides labor to industry; and industry buys food from them; but there is little connection between themproductivity in agricultural sector is so low that there is disguised unemployment; i.e. surplus labortransformation dynamic lies in the attraction of this rural surplus labor into the industry such that while industrial production increases, there is no change in agricultural production.
10 Growth with unlimited supply of labor Arthur Lewis Distribution of Income:Higher level of savings and investment in the industrial sector is key to development; butonly capitalist class is capable of savings and investment.A limit will be imposed on this growth process as L surplus is depleted and wages increase → undesirable from Lewis’ perspective.Hence Lewis advocates income distribution in favor of the capitalist class and against labor.
11 Critics of the Lewis Model Advocacy for pro-capital; anti-labor income distribution; hence increasing inequality for the sake of growthNo consideration of Institutional Factors influential in wage determination such as minimum wage policies, labor unions and collective bargaining practicesAssumption about Capitalist Strata as a source of investment and growth can be ill founded
12 Stages of Growth Theory Walt Whitman Rostow The Rostowian take-off model claims to be a universal historical model of economic growth which was developed on the basis of the economic history of Britain.The model claims that economic modernization occurs in five basic stages, in changeable time period.Traditional societyPreconditions for take-offTake-offDrive to maturityAge of high mass consumptionRostow argues this is a universal historical categorization of stages of growth that all societies necessarily go through with similar experiences.
13 Traditional Society output consumed by producers rather than traded trade carried out by barter; goods exchanged for other goodsagriculture → dominating sector; labor-intensiveresource allocation determined by traditional methods of production than scientific knowledge“pre-Newtonian” or “pre-scientific” society dominated with a perspective of long-term fatalismlandholders plays a dominant and important role in the determination of political and economic power
14 Pre-conditions for Take-off destruction of traditional society throughoutside forces such as colonialismemergence of entrepreneurial and managerial classdevelopment of a financial sector and increase in investmentinfrastructural developmentmodern business using new and sophisticated methods of productionemergence of “reactive nationalism”
15 Take-off into sustained growth increasing industrialization, productionand employment switches from agriculture to manufacturinggrowth concentrated in a few regions of the country and in one or two manufacturing industriesinvestment reaches over 10% of GNPevolution of new political and social institutions supporting the industrializationgrowth becomes self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment.
16 Drive to Maturity the economy starts spreading into new areas technological innovation provides expanded range of investment opportunities.the economy starts producing a wide range of goods and services and there is less reliance on importsthis diversity leads to greatly reduced rates of poverty and rising standards of living, as the society no longer needs to sacrifice its comfort in order to make certain sectors more productive.
17 Age of High Mass Consumption the economy is oriented towards mass consumptionservice sector becomes increasingly dominantsociety is now devoted to the pleasures of consumer choice, the pursuit of security, and the enjoyments of the arts and leisure
18 Critics of the Stages of Growth Theory by Rostow attempts to universalize the experience of a particular country (Britain) in a specific period of time (16th to 20th century)External factors such as colonization / imperialism can hinder the process of development in the colonized nationsdescriptive; no analysis of how the pre-conditions for take-off are to emergeempirically not validated
19 DEVELOPMENTALIST THEORIES of ECONOMIC DEVELOPMENT BASIC CHARACTERISTICS:Post-WWII Pioneers of Development EconomicsLoose school of thought; less theoretical; more historical and practical approach to the question of how to developOptimistic, believe in the inevitability of development as a linear process that all nations go throughEmphasize large-scale industrialization as the key to the development processProfound respect for market forces yet support large-scale government intervention to force economic growthSimilar to Keynesians in regard to advocacy for government intervention and also that poor economic performance reflects a lack of aggregate demandLEADING THEORETICIANS:Theory of the Big Push: Rosenstein-RodanTheory of balanced growth: Ragnar NurkseUnbalanced Growth: HirschmanGrowth with Unlimited Supply of Labor: LewisStages of Growth Theory: Rostow