Challenges to “Old” Development Economics
The third phase, starting around the mid-1960s, resulted from different reactions to views rife during the first and second phases.
The major challenge came from the resurgence of neoclassical economics, which criticized a number of pet themes of development economics of the earlier phases, including surplus labour, export pessimism, the focus on capital accumulation, and the benefits of state-led planned industrialization (see Lal 1985).
This resulted partly from changes in intellectual currents in economics as a whole, reflected in the ascendancy of different forms of monetarism over Keynesianism. It was also due to the actual experiences of LDCs: the blame for development failures in many LDCs was laid at the door of development economics for its focus on dirigiste and autarkic industrialization policies, and the emergence and rapid growth of the East Asian economies was perceived by neoclassical economists as resulting from export-oriented and free-market policies (see Little et al. 1970). The policy of import-substituting industrialization, in particular, was singled out for criticism, for promoting inefficient capital-intensive industries and diverting resources away from labour-intensive sectors in which LDCs had a comparative advantage, and for promoting rent-seeking and other kinds of directly unproductive activities rather than productive and innovative activity. The successful developers of East Asia were seen as promoting exports and removing the import-protecting distortionary biases and following market-friendly policies which exposed their economies to foreign competition. Although, as we shall see later, this interpretation of the reasons for the success of these economies is flawed, it had an effect on the nature of development economics.A second challenge came from those who argued that the focus of development economics on growth and capital accumulation resulted in the neglect of the human dimension of development and of income distribution and poverty (see Little 1982: ch.
11). This view was bolstered not only by cases of rapid growth and increasing inequality in some LDCs, but also because, in the wake of growth failures, it was believed that the urgent priority should be the satisfaction of the basic needs of the poor. To some extent this was a reorientation of the objectives of development - although it can be argued that the early proponents of growth viewed growth as a means to human development and poverty removal - but it also reflected a change in the strategy of development, from a focus on saving, investment and industrialization, to an emphasis on employment creation and direct methods of poverty alleviation. The basic needs approach pioneered by Paul Streeten (1982) and others was developed, focusing on the consumption of basic goods such as food, clothing, shelter and health care, and it led to a focus on poverty, inequality and human development.A third challenge came from radical quarters, especially with the rise of the dependency school (see Palma 2008). This school, although echoing many of the concerns addressed in early development economics, saw the root cause of underdevelopment not in the problems of capital accumulation and internal rigidities and market failures, but in the relations of LDCs to rich countries. Some argued that underdevelopment was not the absence of development but, rather, a process just like development; in other words, underdevelopment developed. Moreover, development and underdevelopment were seen as two sides of the same coin, part of an overall common process of global uneven development according to which the very process which led to development in some parts of the world led to the underdevelopment of other parts. Marxist and other radical writers focused on the problems created by trade and aid dependence and, most importantly, by the activities of transnational corporations. International trade locked in countries into their traditional roles - the rich as producers of advanced industrial goods and the poor as producers of primary products and simple consumer goods - and allowed technological development in rich countries and caused stagnation in poor countries. The activities of transnational corporations, by adversely affecting domestic entrepreneurship in LDCs and by causing the transfer for large monopoly profits to rich countries - often facilitated by transfer pricing between branches to hide actual profit transfers - also impoverished poor countries as a whole while supporting local elites and widening income distribution, and politically subjugated poor country governments. Foreign aid also created dependence and reduced domestic saving while supporting repressive regimes.
More on the topic Challenges to “Old” Development Economics:
- Challenges to “Old” Development Economics
- Faccarello G., Kurz H.-D.. Handbook on the history of economic analysis. Volume III, Developments in major fields of economics. Edward Elgar,2016. — 659 p, 2016
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