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Development Study Guide

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Tara Morazzini

on 11 March 2013

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Transcript of Development Study Guide

The 1940's Post World War Two The end of a war, the beginning of international development 1944 1945 1948 - The International Bank for Reconstruction and Development is created, today it is a part of the World Bank

- International Monetary Fund is created UN is created Universal Declaration of Human Rights The Declaration arose directly from the experience of the Second World War and represents the first global expression of rights to which all human beings are inherently entitled. Seven decades of Development The 1950's Marshall Plan - American program to aid Europe where the United States gave monetary support to help rebuild European economies after the end of World War II in order to prevent the spread of Soviet Communism.

- The plan was in operation for four years beginning in April 1948. The goals of the United States were to rebuild a war-devastated region, remove trade barriers, modernize industry, and make Europe prosperous again.
"We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. The old imperialism — exploitation for foreign profit — has no place in our plans. What we envisage is a program of development based on the concept of democratic fair dealing." January 20, 1949, when Harry S. Truman made these remarks in his inaugural address: 1949 Truman's Message Takes Effect
- Majority of the world is declared 'underdeveloped'

- The Third World is 'discovered' 1960's Dependency Theory Dependency Theory ISI Modernization Andre Gunder Frank & Paul Baran Fernando Henrique Cardoso & Enzo Faletto We Disagree!!!!! ECLA and the Structuralist School Import Substitution Industrialization Alliance for Progress 1961 Main argument:
A nation’s economic strength, largely determined by historical circumstances, dictates its global power. Also, purely export-oriented solutions to development create imbalances that are detrimental to the poor.

Underdevelopment in Latin America resulted from the region being brought in the capitalist system to satisfy the economic needs of the metropolitan powers.

• Decisions as to when and where to develop mines, plantations or infrastructure were made according to the requirements of the metropolitan powers, not the Latin American nations. •Basic framework of dependency is correct but it needs historical structuralism

- Development within the periphery is possible if the state is active

•Post WWII, LA was in position to grow and prosper yet they still were restricted by dependency they had on international capitalism and MNCs

•Critiqued the Modernization theory, rejecting the concept of lineal and evolutionary development. Studied the effects that the Great Depression had on Latin America and how it forced Latin America to adopt ISI by default.

•Latin America does not need to repeat the development countries history, because LA has had its own unique history. Enclave economies: foreign invested capital originates in the exterior, is incorporated into local productive processes, and transform part of itself into wages and taxes Dependency theorist Paul Baran suggested that the main impediments to long-term growth in LA were the feudal coherence of the latifundia system and the monopolistic market structure.
For Baran (and Frank) while the periphery was tied to the center, there was no possibility of sustainable growth.
As long as traditional elites stayed in power, periphery countries would be shackled to center country interests, because traditional elites formed alliances with international capitalists which hindered long-term growth in favor of short-term profits. Lipset 1959 overall Effects of Modernization in LA 1960 Seymour Lipset wealth and income lead to democratic transition because it affects citizens’ values and receptivity to democratic tolerance norms.
Lipset identified a group of socioeconomic indicators in Europe and Latin America, finding a correlation between economic development and democratic governments.
Book: “The Political Man” “A non-communist manifesto”

American economic historian, Rostow coined the theory of the stages of economic growth.

Development is a linear process (see left).

For Rostow, development meant economic development.

Top-down, capitalist approach, everyone should imitate the western experience.

Modernity= western capitalist society. - Ascension of strong leaders backed by the military (Getúlio Vargas - Brasil) focus on nationalization and investment in industries

- Ascension of populist leaders, allied with working class (Juan Perón - Argentina, Vargas - Brasil)

- Predominance of semi-democratic regimes (middle and upper class allied to prevent working-class movements and radical parties from winning elections)

- Peru and Bolivia‘modernization’ of the Indio became campesinos and are educated in order to ‘assimilate’ their specific rights are not recognized unequal democracy

- Brazil and Mexico some growth but massive inequality dualism (favelas and luxurious condominiums, Northeast and Southeast in Brazil, North and indigenous South in Mexico)
Shortcomings of Modernization theory

1. It ignores power relations (all the blame is put on the culture)
2. It ignores historical roots
3. It assumes that modernity will automatically bring development
4. Too much faith on economic growth-- ignores institutions WW Rostow 1970s
Dependency Main characteristics:
Underdevelopment is not caused by inadequacies in underdeveloped countries, but the direct outcome of development elsewhere and the manner in which the countries were incorporated into the international capitalist system
Reaction to modernization theory and orthodox Marxism (sees imperialism from the center’s perspective)
Capitalism and its contradictions are reflected in the unequal terms of trade between the prosperous centers – metropolis - and underdeveloped peripheries
Give new impetus to ISI policies

Two distinct phases:

1) blame on external factors for underdevelopment in LA (Andre Gunder Frank, Theotonio dos Santos)

2) Consideration of both external and internal factors to explain LA underdevelopment (FHC and Faletto) Center/ Periphery: PREBISCH and SINGER Raul Prebisch was an Argentine economist. His contributions to development economics broke with the neoclassical, and questioned the extent to which the free market and free trade could solve the problem of underdevelopment.

Prebisch divided the world in two—labeling one part the center and the other the periphery. The center was the advanced economies, which produced primarily industrial goods; the periphery was developing countries, the producers of primary products. Prebisch claimed that this relationship led to the center gaining at the expense of the periphery.

In the North (center) productivity led to rising wages, due to the market power of business and unions. In the South (periphery) surplus labor kept wages low, and slow productivity growth in agriculture and mining dragged the economy down. Overall, this inequality according to Prebisch was due to declining terms of trade, as developing countries would have to export more and more to be able to import the same quantities as before.

In 1950, Prebisch and Hans Singer independently developed the thesis (Prebisch-Singer hypothesis) that countries that export commodities in time would import fewer manufactured goods relative to a given level of exports. PREBISCH- SINGER HYPOTHESIS Center-Periphery STRUCTURALISM: Prebisch and his boyz at ECLA (C)

The position of structuralists was informed by, but not completely defined by, dependency theorists’ critique of the international economic system. Structuralists argued that that the economy was shaped by power and politics, by interest-group politics to be specific.

For structuralists, the development process is not a movement toward equilibrium but rather is driven by imbalances and tension. They believed that international trade exacerbated inequality between and within nations.

ECLA analysts (under Prebisch) focused on the volatility of primary product exports and the increasing difficulty of paying for expensive technological products with limited agricultural returns. Technological progress was controlled by the center, while the periphery trade primary products such as raw materials and agricultural goods for these technological products. The arguments of dependency theorists + structuralists = ISI policy

- Package widely adopted in LA. Import substitution industrialization policies sough to develop industries in a protected environment within LA, rather than relying on the international economy for growth.
- The goal of ISI was to create industries capable of producing substitutes to for expensive imports while at the same time promoting industrial growth and expanding internal economies.
- Hirschman intervention of government to break bottleneck to get to value added economy, focus on industries for example steel with forward and backward (labor and mining) linkages The ISI toolbox can be broken down into three categories: active industrial policy, protective international instruments, and accomodationist fiscal and monetary policy complemented by a careful program of transnational participation. These were applied in varying degrees in each country.

- Industrial Policy:
- SOEs
Industrial policy under ISI was focused on the formation of state owned enterprises (SOEs). State intervention was seen as the pragmatic response to the failure of the free market. From the 1950s to 1970s SOEs grew rapidly despite encountering difficulties. Use Brazil as example.

- International Instruments:
- Protectionism
Protection of high tariffs and trade restrictions to give less-competitive national industries the change to develop without the competition of large multinational firms. This policy wasn’t aimed at ignoring exports but was intended to lead to the development of new products.
- Quotas on imports, exchange rate overvaluation, exchange rationing, import licenses

- Fiscal and Monetary Policy:
- Subsidies for cheap inputs, public transportation
- Preferential interest rates, accommodating monetary policy
- National Banks are formed Was ISI successful?

Even though data suggests ISI had a positive impact on growth until the 1980s, ISI was both unsustainable over time and produced high economic and social costs. In theory, ISI should have developed an internal momentum, expanding industrialization through inter-industry linkages.

- Given the limited size of the LA market, ISI became “exhausted”

- Nationally manufactured goods did not meet international standards, making them uncompetitive in the international market. Firms were not forced by competition to become efficient

- Industrial process was in the hands of elites, it failed to produce an entrepreneurial class

- Many of the tools in ISI created the possibility of profitable rents for those who controlled them: Corruption!!

- ISI exacerbated inequality in the region: preserved the power of the elite class

- ISI fostered the created of inefficient economic institutions

- Agriculture was neglected: weakened a source of profit and food security

- Bias in against export growth through overvalued exchange rates, leading to differences in domestic expenditure and revenue = persistent deficits and inflation vs. Meanwhile... UN Conference on Human Environment in Stockholm 1972 1976 UN General Assembly declaration
of a New International
Economic Order 1974 - Key in emergence of sustainable development

- Recognition that poverty alleviation is key for protecting the environment - Set of proposals put forward by some developing countries through the United Nations Conference on Trade and Development to promote their interests by improving their terms of trade, increasing development assistance, developed-country tariff reductions, and other means.
-It was meant to be a revision of the international economic system in favour of Third World countries Muhammad Yunus In 1976, during visits to the poorest households in the village of Jobra, Bangladesh Yunus discovered that very small loans could make a disproportionate difference to a poor person. 1980s
"The lost decade" Decade Characterized by:
i.The rise of alternative development: how development should occur rather than theorizing social change
1.equal economic growth and widespread improvements in social and material well-being of a society
2.Rejection of linear model of development and assertion that development must be related to specific local conditions focused on mobilizing internal and natural human resources, appropriate technologies and a priority placed on satisfying basic needs
3.Idea of sustainable growth concerning population, use of natural resources and impacts on environment
- the "Lost decade" in Latin America
Development reversals plague developing world as global economic recession and debt crisis cause lower investment and higher unemployment Mexico 1982 1985 IMF's approach: conditionality The Baker Plan 1983 The Brundtland Commission 1987 " The debt crisis in LA was a development crisis. It called into question the viability of the ISI model of development and shaped the economic future of the region." -Patrice Franko Mexico sounds the first alert to the international community of the debt crisis when it announced its inability to service its debt The Brady Plan 1989 What caused the Debt Crisis - Consequence of spending practices of 1950s, 1960s and 1970s (careless borrowing for large-scale projects, economic populism, inefficiency, corruption)
- Short term borrowing against long-term returns

- Negative real interest rates and influx of petrodollars into the banking system makes borrowing attractive and easy during 1970s-- in real terms countries had to pay back less then they borrowed and had seemingly unlimited funds

- 1979 Fed raises interest rates (as LA countries' interest payments for loans increase, the US market for LA exports falls = limited foreign exchange needed to repay loans

- After Fed raises interest rates --> less investment of petrodollars in LA when investors see that they can get a better return in a safer economy = less money coming into LA
- Excess supply of local currency = inflation - assumption that LA countries need to reduce domestic absorption of reduces (fewer goods consumed at home so you have a trade surplus)
- prescribe a decrease in fiscal spending
- tight monetary policy
- strict trade policies
- criticized by structuralist school for unnecessarily contracting the economy without addressing structural problems - Premise was that countries could not continue to service their debt through contractionary policies

- Growth and adjustment became linked

- Represented a shift away from IMF conditionality, towards structural adjustment

- New role given to World Bank- promoting institutional change
- Debt comes to be understood as a development problem: WB begins to engage on macroeconomic policy and IMF is forced to design lending facilities to support long-term structural change Offered 3 options:

1. Decrease the face value of debt
2. Extended time period of obligation
3. Infuse new money- facilitating liquity

- Arrived as a vehicle for investment in a region that (after much painful adjustment) was beginning to be viewed as ripe for growth

- Mexico: Brady introduces collateralized Brady bonds, reducing Mexican debt to foreign banks by US$ 48.5 billion and cutting annual debt payments for 4 years

- US serves as an intermediary and lends directly to Mex so markets can get exposure= build confidence "Our Common Future" Sustainable development is the kind of development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The two key concepts of sustainable development are:
• the concept of "needs" in particular the essential needs of the world's poorest people, to which they should be given overriding priority; and
• the idea of limitations which is imposed by the state of technology and social organization on the environment's ability to meet both present and future needs

"...the "environment" is where we live; and "development" is what we all do in attempting to improve our lot within that abode. The two are inseparable." 1. Fiscal discipline

2. Public Expenditure Priorities

3. Tax Reform

4. Financial Liberalization

5. Exchange Rates

6. Trade Liberalization

7. Increase FDI by reducing barriers

8. Privatization

9. Deregulation

10. Secure Property Rights

…. With hope that the resulting growth will “trickle down” Sen: Capabilities Approach The capability approach was initially conceived as an approach to welfare economics. . The core focus of the capability approach is on what individuals are able to do (i.e., capable of).
Five components in assessing capability:

The importance of real freedoms in the assessment of a person's advantage

Individual differences in the ability to transform resources into valuable activities

The multi-variate nature of activities giving rise to happiness

A balance of materialistic and nonmaterialistic factors in evaluating human welfare

Concern for the distribution of opportunities within society

The approach emphasizes functional capabilities ("substantive freedoms", such as the ability to live to old age, engage in economic transactions, or participate in political activities) 1981 Amartya Sen publishes
Poverty and Famines: An Essay on Entitlement and Deprivation, in which he argued that famine occurs not only from a lack of food, but from inequalities built into mechanisms for distributing food. 1990s Neoliberalism The Washington Consensus 1990s 1992 First UNDP Human Development Report with
Human Development Index Rio Earth Summit 1990 Mexican Peso/ Tequila Crisis 1994-5 Argentine Financial Crisis Begins 1998-9 1999 - Fail to systematically address Latin American’s long history of inequality and poverty

- Not concerned with equity --> leave out the “silent majority”

- Globalization exacerbates perceived and real unfairness and sense of insecurity poor feel around the reforms

- The poor in Latin America lacked access to education, land, and credit… how are they going to benefit from these reforms? Washington Contentious Birdsall Real GDP growth only 1.5 % … slow compared with other regions

Minimal Labor Productivity

After NAFTA Mexico looses out to China in terms of exports to US

Poverty and Inequality don’t budge that much, especially considering higher public spending on health and education

Disillusionment with reforms.. Adopting reforms becomes politically difficult and incomplete adoption/ implementation occurs

Crises in mid-late 1990s (Mexico,
Argentina, Uruguay, Ecuador, Dominican Republic)

Failure to focus on job creation in the 1990s undermined other market reforms

Monopolies from privatization
- Shift to greater market-oriented economic development, stability, and income distribution.

- Stability would have flown from greater fiscal and monetary prudence.

- Growth would be spurred through the effects of a greater reliance on markets and a deepened economic integration on efficiency and investment.

-Income distribution would improve through the reductions in opportunities for rents and corruption, which had been created during the old state-centered system. Expected Results vs. Actual Outcome John Williamson published in 1990 the paper “What Washington Means by Policy Reform” in which he proposes a set of ten policies to be implement in Latin America.

Aim: recovery by macro-economy stabilization, boost efficiency and re-start economic growth.

Three pillars:

Williamson recommends a series of instruments that he identifies as reflecting the consensus in Washington – IFIs, and the US treasury – for what was considered a desirable set of economic policy reforms.

Washington Consensus represents a shift in paradigm in development strategy: from state-centered to market centered approach. Macroeconomic
Discipline Free-market Capitalism Openness to the World Neoliberalism/ Market Fundamentalism What Happened? What went wrong? - Difficultly taxing
- Privatization of SOEs requires a complementary set of policies and swift implementation
- Missing institutions (each reform needs complementary reforms)
- Partial/ incomplete implementation, pick and choose implementation
- Timing of reforms
- Specific country examples? Can we argue that WC was successful anywhere?
- Ignore cultural, social and historical context
- Examples of what went wrong: water wars in Bolivia Sen "100 Million Women are Missing" Essay in The New York Review of Books

Sen originally estimated that more than a hundred million women were "missing" in Asia the sense that their potential existence had been eliminated either through sex selective abortion, infanticide or inadequate nutrition and health care during infancy. Amartya Sen + Mahbub ul Haq Human
Index Life Expectancy Income Education Shift the focus of development economics from national income accounting to people centered policies An important achievement was an agreement on the Climate Change Convention which in turn led to the Kyoto Protocol.

Another agreement was to "not carry out any activities on the lands of indigenous peoples that would cause environmental degradation or that would be culturally inappropriate". highlights the problematic effects of international capital flows for internal macroeconomic stability - Mexico is seen as safe haven for trade after it engages in fiscal stabliziation, privatization, and opening internal markets to international trade
- High levels of capital inflows = appreciation of peso
- Exacerabated by current account balance
- Uprising in Chiapas, Colosio is kidnapped, investors panic
- Gov begins to offer tesobons, dollar-denominated treasury bonds but refuses to devalue or raise interest rates
- Mex gov has to let currency float and devlaue
- US gov, IMF and BIS provide loan relief
- Brazil's currency crisis 1997 Asian Financial Crisis 2000s 2000 2002 World Summit on Sustainable Development in S. Africa WHO 2006 2010 World Development
Report on Gender 2012 - Poverty alleviation
- Discourse of participation and development
- Poverty reduction strategies replace SAPs
- MDGs Preventing Disease Through Healthy Environments Stohr and Taylor Development from Below considers development to be based primarily on maximum mobilization of each areas human, natural and institutional resources with the primary objective being the satisfaction of the basic needs of the inhabitants in that area MDGs Globalization Debate: Rodrik (2000)

argues “that since 1945 social welfare programs and openness to trade have grown hand-in-hand, each reinforcing the other. The social insurance programs carried out by governments have helped mitigate the disruptions caused by international trade and solidified coalitions in favor of economic openness. If vital safety nets are allowed to deteriorate, Rodrik concludes, the domestic consensus in support of open markets will erode, protectionist measures will soar, and political organization for globalization itself will be threatened.” Investors get freaked out = Capital Flight Contagion
effect • Welfare (1950s-1970s): state policy to promote citizens’ opportunities, specifically improvement in labor conditions for women – economic, social and legal rights •Women in Development (WID) (mid 1970s – mid 1980s)—emphasis on inclusion of women’s issues in development projects; still women’s role subordinated to men •WID II (1980s)—women as an integral part of society & development •1979: Convention on the Elimination of All Forms of Discrimination against Women – CEDAW established a comprehensive framework to promote equality for women •The efficiency approach (1980s onward)—recognized women’s contribution is essential to economy •Empowerment/mainstream (1990s) Women empowerment through self-reliance •Gender & Development (GAD) (starting late 2000s)—focus on gender relations in order to better determine the structure of development projects; achieving equity & equality across roles – of both men and women – in society Gender Mainstreaming: equality in all interventions UN Member States took an historic step in accelerating the Organization’s goals on gender equality and the empowerment of women. - Elimination of discrimination against women and girls;
- Empowerment of women; and
- Achievement of equality between women and men as partners and beneficiaries of development, human rights, humanitarian action and peace and security. i. Rise of post-modernism within social sciences, end of Cold War, collapse of communism, and rise of globalization all framed rise of neo-liberalism which emphasizes free market mechanisms (removing state influence from markets), especially through structural adjustment programs (SAP) from the IMF and World Bank.
ii. Increased criticism of development as too westernizing, and harmful to local cultures and values, “defending the local” through grassroots participation rather than depending on state or regional governments Because large and unsustained fiscal deficits = macroeconomic dislocation in the form of inflation, capital flight, and payments deficits
Lack of political courage to balance public expenditures and resources available to finance them states need to cut back on subsidies (esp indiscriminate) and refocus on health, education and public infrastructure draw taxes from a broader base and marginal taxes should be moderate exchange rates should be competitive and market
determined but consistent with macroeconomic objectives ... part of an outward oriented economic policy interest rates should be market-determined and positive (to avoid capital flight) import liberalization
in the past, protecting domestic industries vs. foreign firms has = distortions
- keeping tariffs reasonable FDI brings capital, skills private industry is managed more efficiently than state enterprises to promote competition 1. Eradicate extreme poverty and hunger
- halve the proportion of ppl whose income is less than $1 a day
- halve the proportion of children who suffer from hunger 2. Ensure that by 2015 children everywhere,
boys and girls alike, will be able to complete a full
course of primart schooling 3. Promote gender equality and empower women
- eliminate gender disparity in primary and secondary
education by 2005 and in all levels of education by no later than 2015 4. Reduce Child Mortality
- reduce by two-thirds the under five mortality
rate (btwn 1990- 2015) 5. Improve maternal health
-reduce by three-quarters (btw 1990-2015)
the maternal mortality ratio 6. Combat HIV/AIDS, malaria, and other diseases
- have halted by 2015 and begun to reverse the spread of HIV/AIDS
- have halted by 2015 and begun to reverse the incidence of malaria and other major diseases 7. Ensure environmental sustainability
- integrate the principles of sustainable development
into country policies and program and reverse the loss of environmental resources
- halve the proportion of people without access to safe drinking water
- have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers 8. Develop a global partnership for development
- develop further an open, rule-based, predictable, non-discriminatory trading and financial system
- address the special needs of least developed countries
- deal comprehensively with the debt problems o developing countries through national and international measures in order to make debt sustainable in the long term UN Millennium Summit Charter called for:
an annual increase of 2.5% in per capita income,
the establishment of democratic governments,
the elimination of adult illiteracy by 1970
price stability, to avoid inflation or deflation
more equitable income distribution, land reform, and
economic and social planning The Alliance for Progress included U.S. programs of military and police assistance to counter Communist subversion, including Plan LASO in Colombia. In Latin America during the 1960s thirteen constitutional governments were replaced by military dictatorships. According to some authors, such as Peter Smith, this was a failure of the Alliance for Progress.
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