The Changing Context
During the seven decades covered in this chapter, both the prevailing economic environment facing developing countries and dominant thought among economists changed significantly.
As far as the social and economic environment is concerned, the period starts with deep and rather uniform underdevelopment in the colonies and newly independent countries of the Third World, as well as countries in Latin America which, though formally independent for many decades, were subject to “informal colonisation”. Very low incomes and poor social indicators, a heavy dependence on agricultural production and primary commodity exports, weak and deteriorating terms of trade, and small “modern” sectors presented the main challenges facing developing countries, while the developed countries still showed the scars of the Second World War and their economies remained subject to the controls and restrictions introduced during the war. For about three decades after the Second World War, most developing countries remained inwardlooking with many constraints on production, trade and capital, in contrast to developed countries where government intervention in both internal and external markets was progressively reduced. However, from around 1980, marketisation accelerated in developed countries in response to political changes, while a debt crisis greatly increased the influence of the international financial institutions (IFIs) over policy-making in many developing countries, and consequently government intervention in the economy were radically reduced and international integration of product and capital (but not, of course, labour) markets followed in a process which came to be described as “globalisation”.The pace and nature of economic development varied considerably among countries over the succeeding decades, so that by 2000, the Third World was far less homogeneous, with differences among countries providing abundant material for the analysis of causes and consequences of structural and policy change.
Social indicators showed considerable improvement almost everywhere; the gap between developed and developing countries narrowed, and some countries effectively caught up with developed countries in industrialisation and incomes (Nayyar 2013). However, over one-and-a-half billion remained in extreme poverty, many in so-called middle-income as well as low-income countries and poverty incidence was particularly high and persistent in Sub-Saharan Africa (Ravallion 2016).Mainstream economics also changed over these decades. For three decades after the Second World War, Keynesianism was dominant. However, it was largely displaced in the late 1970s, partly due to the theoretical work of Friedrich Hayek and Milton Friedman, but also as a result of political changes. The neoclassical paradigm became dominant in economics departments from then on, albeit challenged by unorthodox economists such as Joe Stiglitz. This radical change in mainstream economics undoubtedly affected the teaching of and research into development economics. Despite this, it should be emphasised that many development economists adopted a neoclassical approach throughout this period, while others stuck to a broadly Keynesian approach. This is illustrated by the differences in approach of economists working on development in Oxford.
Another change that affected development economics at least in the UK was the British government’s policies towards development cooperation generally and development research in particular. With decolonisation, the government was concerned to promote relations with the newly independent countries through commercial, cultural and academic relations, and a government department devoted to development was initiated. Its status—whether independent or part of the Foreign and Commonwealth Office—changed according to which government was in power. Resources devoted to aid rose, culminating in a statutory commitment to the achievement of the United Nations target of 0.7% of annual gross national income in 2015. Consequently, there was financial support for area and development studies centres, for research and for training, as well as numerous consultancy opportunities to assist in the disbursement of aid. Research funding increased substantially, gradually switching from support for relatively small projects to large grants administered competitively. Development economics in the UK generally flourished in this environment.
2.2