Theories Of Economic Development

Theories of Economic Development

Terms: First World

Third World

Developed

Developing

More Developed Countries

Less Developed Countries

Global North

Global South

The West

The Rest

Modernization Theory

Dependency/World System Theory

Modernization/ Neo-Liberal/Standard Development Theory aka the “Washington Consensus:

Principle Elements of Modernity: • Secularization • Urbanization • Increased Science and technology • Increased social mobility • Rewards based upon merit • Tolerance/rewards for social innovation • Private sphere with limited government control • Rule of law • Division of labor  modern market-based economy

Modernization Theory: The path to development = Primary obstacle to modernization =

Third world must also embrace free trade: Each country should export products according to its comparative advantage

 Everyone gets what they need

Modernization = most prominent theory of development

Modernization Theory transmitted to third world in various ways: Education Multinational Corporations International trade (i.e. globalization) Exports of western culture

Relationship between north & south = economic interdependence = mutually beneficial Issues? Traditionalism is a nebulous concept Grouping diverse cultures into a single “Third World”

History? Different history, different circumstances; can we expect the same results?

Can we afford for everyone in the world to live like we do?

Dependency Theory: Late 1960’s, early 70’s by Latin American economists and sociologists: Why isn’t modernization theory working? Different circumstances Early industrializers didn’t have to compete as much with already developed rivals Colonialism

How was capitalism introduced to the “third world”? Today, southern economies are still very dependent on trade with the north Northern MNCs generally dominate the most dynamic industries in the south Different history, different circumstances, can we expect the same results?

Modernization theory argues that problems of development are internal to the nation state (lack of modernity) Dependency theory argues that the problems are systemic, (global capitalism)

World system theory developed out of Dependency Theory Most prominent scholar = Immanuel Wallerstein

Two sets of exploitative relationships: 1. Within particular companies 2. In the global economy

The Core =”the first world”: Industrialized Relatively high wage rates and living standards The Periphery = “the third world” (most countries in the world): Limited industrialization, Relatively low wages and living standards.

Development of core is linked to the underdevelopment of the periphery

Spread of capitalism via colonialism  global division of labor

Core: Technologically sophisticated goods Periphery: primary (raw) materials or final touch manufacturing

Core

Core

Manufactured Goods

Manufactured Goods

Periphery Primary Goods

Peripheral economies still geared toward needs of core markets Both development and underdevelopment are aspects of the same phenomenon “Both are historically simultaneous, both are linked functionally and, therefore, interact and condition one another mutually.” Two sides of the same coin

Andre Gunder Frank: International capitalism = the development of underdevelopment Development of core means underdevelopment of periphery

Mechanisms: Unequal Exchange Ex: Exporting bananas, importing cars Negative Trade Imbalance Ex: My checkbook Foreign Aid  policies favorable to aid providers (core countries) Multilateral Loans  Foreign control of peripheral countries’ fiscal policy  less public spending

Core Periphery w/in core

Periphery Core w/in periphery