MARKET, STATE AND SOCIETY

DEVELOPMENT

PS 357 | 2022 FALL SEMESTER

INSTRUCTOR: BERKAY AYHAN
WEEK 12 | NOVEMBER 28 & DECEMBER 1
THIS WEEK’S CONTENTS

■ POVERTY AND DEVELOPMENT

■ MODERNIZATION THEORY
■ INFANT INDUSTRY ARGUMENT
■ DEPENDENCY AND WORLD SYSTEMS
■ HISTORY OF DEVELOPMENT
■ DEVELOPMENTAL STATE
■ FROM WASHINGTON TO BEIJING CONSENSUS
■ NEXT WEEK’S PREPARATION

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Concept of Development

■ Development can be seen as both a process and a condition. Early views equate
development with self-sustaining economic growth
■ Developing countries typically exhibit characteristics like; high instances of poverty
and hunger, lack of infrastructure, low literacy rates, high instances of infant
mortality, weak governments, and dependence on foreign aid
■ Rapid accumulation of capital, efficient resource allocation, sharing benefits of
growth, technological progress are considered as signs of development
■ Broader understanding of human development includes social objectives like
health, employment, shelter, gender equality
■ Development is about a structural transformation of economy as well as movement
from traditional to modern society

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Human Development

■ Human development approach perceives development from the perspective of the

people and their capabilities, instead of merely focusing on economic growth
■ Human development index (HDI) seeks to measure achievement in three key
dimensions: A long and healthy life, being knowledgeable, and having a decent
living standard
■ Human development index is calculated with life expectancy at birth, expected and
mean years of schooling, and GDP per capita
■ Example: Turkey is ranked 64 among 189 countries in the “high human
development” category of HDI in 2017
■ Life expectancy at birth: 79.2 for females, 72.8 for males
■ Mean / expected years of schooling: 8.0 / 15.2
■ Gross national income per capita: 24,801 (2011 $ PPP)
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Human Development Index Data

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Multidimensional Poverty Index Data

Regions Population in Multidimensional % of population living below income

Poverty (2017) poverty line PPP $1.90 a day
Arab States 52,251,000 4.6

East Asia & Pacific 113,247,000 2.1

Europe & Central Asia 1,240,000 0.6

Latin America & Caribbean 39,324,000 4.1

South Asia 548,048,000 17.5

Sub-Saharan Africa 571,884,000 44.7

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Changing Vocabulary of Development

■ Widespread decolonization following the World War II have made development a

universal goal to the new nation states of Asia, Latin America, and Africa
■ These countries were called “underdeveloped”, “poor” and “backward” immediately
after the war
■ By early 1960s, the term “less developed country” replaced these offensive terms
■ By mid-1960s, usage of “developing country” replaced the former
■ In context of Cold War, these countries were viewed as the “Third World”, though
some object because it implies inferiority
■ By 1970s, these countries are referred as the “South”, since they were located in
the southern hemisphere
■ Since 1990s, people experiencing poverty and marginalization are expressed by the
term “Global South” regardless of their geographic location
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Modernization Theory

Walt Rostow argued that there are 5 stages of economic growth that each society
passes on the way to development
■ Traditional Society: Characterized by an economy dominated by agriculture, limited
technology, traditional social system with fatalistic values
■ Preconditions to Take-off: Investments in infrastructure, transfer of resources from
agriculture to industry, emergence of a new elite
■ Take-off: Industrialization begins with investment in manufacturing exceeding 10%
of GDP, creation of modern social, economic and political institutions
■ Drive to Maturity: Rise of living standards, increasing use of technology, growth and
diversification of national economy
■ High Mass Consumption: Mass production and consumerism, driven by durable
consumer goods and services
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Modernization Theory

■ Modernization theory viewed development as a comprehensive social and

economic modernization project aiming to transform traditional economies into
capitalist economies of the West
■ Modernization theory defended the stages of development as universal. Developed
countries will become modern industrialized nations
■ Causes of underdevelopment are internal, rather than global and structural!
■ Poor countries can develop if they adopt similar attitudes and social structures to
developed world. Underdevelopment is due to societies’ own failure to utilize
resources for economic growth

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Friedrich List
The National System of Political Economy, 1841
“The great monarchies [of Britain] perceived that the highest degree of
civilisation, power, and wealth can only be attained by a combination of
manufactures and commerce with agriculture. They perceived that their
newly established native manufactures could never hope to succeed in
free competition with the old and long-established manufactures of
foreigners [the Italians, the Hansards, the Belgians, and the Dutch] ...
Hence they sought, by a system of restrictions, privileges, and
encouragements, to transplant on to their native soil the wealth, the
talents, and the spirit of enterprise of foreigners.”
“It is a very common clever device that when anyone has attained the
summit of greatness, he kicks away the ladder by which he has climbed
up, in order to deprive others of the means of climbing up after him.”

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Infant Industry Argument

■ Infant industry argument, a cornerstone of the mercantilist approach, is developed

by Alexander Hamilton and Friedrich List
■ Given the presence of more developed countries, developing countries cannot
develop new industries without state intervention such as tariff protection
■ If developing countries pursue free trade, this benefits their agricultural exporters at
the expense of national manufacturers and long-term national economic prosperity
■ Free trade is beneficial among countries with similar levels of industrial
development
■ Developed countries are kicking away the ladder by promoting free trade to newly
industrializing countries, thus preventing them to climb the ladder of development!

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History of Development:
Britain, US, and Germany
■ Britain was the first country to use infant industry promotion! Contrary to the
conventional view of Britain as free trade & free market economy, the country
promoted free trade in the mid-19th century once it industrialized
■ United States was advised by the liberals like Adam Smith to specialize on
agriculture in early 19th century. But US resorted to protectionism for
industrialization. United States promoted liberal trade only after WWII, given its
industrial supremacy
■ Germany pursued infant industry protection in the 19th century by using tools like
trade protection, monopoly rights, export subsidies, capital investments and skilled
workers from abroad

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Promoting Good Policies & Institutions
or Kicking Away the Ladder?
■ International organizations and developed countries are promoting
“good policies” and “good institutions” to foster development in
underdeveloped countries
■ Good policies refer to liberal orthodoxy of Washington Consensus
■ Good institutions are those of developed countries including;
democracy, independent judiciary, independent central bank,
intellectual property rights, transparent corporate governance
■ History illustrates that rich countries became rich not by following
these policies! These institutions were the outcome, not the cause of
their development
■ Developed countries are kicking away the ladder by promoting these
policies and institutions!
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Critical Approach on Development

■ Dependency and World Systems theories point out that underdevelopment of the
South is a by-product of the development of the North
■ Colonization process had benefited colonial powers who extracted raw materials
and resources for their development, and left colonies impoverished
■ While the decolonization eliminated political control of the colonizers, division of
labour between the metropole-satellites remains intact, resulting in neo-colonialism
■ Dominant-subordinate relationships continue through mechanisms unequal
exchange in trade, strings attached to foreign aid, and debtor-creditor relations in
the international financial system

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Critical Approach on Development

■ Terms of Trade: Raul Prebisch pointed out the persistent tendency for the value of
primary commodities to fall vis-à-vis manufactured exports
■ Gains from international trade are unequally distributed: Developed countries
continue to prosper as producer of industrial goods while developing countries
suffer as exporters of raw materials and primary products
■ Developed countries subsidize their own agriculture while asking developing
countries to lower tariffs on services and manufactured goods
■ Financial power and resources of multinational companies along with the
technological innovations that are protected with patents create disadvantages for
developing countries

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History of Development:
Post-WWII Era
■ Development in post-WWII era was a key national project of post-colonial countries
in their pursuit of independence
■ Development thinking underlined guidance of state, provision of welfare for citizens
and pursuit of Keynesian economic policy
■ Developing countries challenged unfair international economic system with a
proposal called the New International Economic Order (NIEO) at the UN in 1974
■ NIEO included the betterment of the terms of trade, expanding assistance to
development, and liberalization developed country tariffs
■ Prominence of dependency theory’s critique of comparative advantage led to the
implementation of import-substituting industrialization (ISI) by many Latin American
countries

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Import-Substituting Industrialization

■ Import substituting industrialization is an inward-looking and nationalistic strategy

that preferred to industrialize behind protection barriers
■ ISI’s aim is to minimize the dependence on foreign capital, technology and markets
by developing domestic infant industries behind protectionist barriers
■ ISI attempts to produce locally manufactured goods instead of importing them from
abroad. Thus, ISI seeks to create jobs, improve balance of payments, and promote
development
■ Producing labor intensive consumer goods is followed by the deepening of ISI
towards capital intensive goods
■ Paradoxically, ISI resulted in dependence on foreign capital to finance this
deepening. High costs of imported technology resulted in shortage of foreign
exchange
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History of Development:
Neoliberal Era
■ Debt crisis of developing countries in early 1980s was solved with IMF and World
Bank structural adjustment programs
■ Washington Consensus dominated development thinking that prioritized free
market principles, reflecting the interests of the US
■ Neoliberal policies underpin the increasing capital mobility across the world. Short-
term, speculative inflow & outflow of funds, called hot money, has led to financial
instability and crises for many developing countries
■ Export oriented industrialization (EOI) was implemented to industrialize in export
sectors to integrate with the world economy

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History of Development:
East Asia
■ Hong Kong, Singapore, South Korea, and Taiwan demonstrated success in
development. They are called Asian Tigers in 1990s
■ Export oriented industrialization entails state intervention in many areas including;
selective barriers in imported goods, fiscal incentives to stimulate exports,
devaluation of national currency, investment in education and job training,
promotion of high level of savings, and high levels of investment in R&D
■ State is essential in setting export-oriented development policies. East Asian
countries began with ISI and later switched to EOI
■ Share of manufacture in GDP in South Korea increased from 14% in 1960 to 30%
by 1980
■ Importance of state in achieving development is recognized by development
community. Issue is not just more or less government, it is good government!
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Developmental State

■ Core idea: State can play a central role in economic development

■ Developmental state perspective combines market and plan under authoritarian
technocracy and egalitarian distribution of income and wealth
■ State provides selective tariffs, subsidies, and access to finance to change the
direction of capital accumulation. State actively creates comparative advantages for
manufactured products through protectionist measures
■ Authoritarian character of the state ensures that interests of competing class
fractions are subordinated to state’s goals
■ Region-specific factors mattered in success of developmental state in East Asia.
Cultural factors (Confucianism) dispose ordinary citizens to conformity and powerful
to compromise. Geopolitical context of Cold War allowed for Taiwan and South Korea
to receive US support
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History of Development:
Era of Globalization

■ Sustainable development entered the agenda of 1992 Rio Earth Summit. It

refers to meeting the needs of the present generation without jeopardizing the
resources available to future generations
■ Millennium Development Goals were adopted at the UN in 2000 to be
achieved by 2015. 8 goals are set regarding poverty, hunger, education,
gender equality, health, and environmental sustainability
■ Sustainable Development Goals, adopted at the UN in 2015, extended
development agenda to 17 goals to be achieved by 2030
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Rise and Fall of Washington Consensus

■ Washington Consensus is the label of neoliberal orthodoxy in development thinking.

Policy package reflect the interests of the US Treasury, IMF and World Bank
■ Washington Consensus policy reforms include trade and financial liberalization,
privatization, protection of property rights, deregulation, fiscal discipline
■ By the end of 1990s, the power of Washington Consensus eroded due to; poor
economic performance of countries that implemented structural adjustment
programs as well as a series of devastating crises in developing countries
■ Emerging Post-Washington Consensus recognized the failures of the market and
underlined the role of state for achieving development
■ Policy reforms extended to include state reforms such as good governance in public
administration, creating institutions to enable markets, re-regulation and poverty
reduction
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Rise of Beijing Consensus

■ Global financial crisis undermined the hegemonic power of the United States while
economic dynamism of BRICS countries signals emergence of a multi-polar world
■ Beijing Consensus underlines innovation-based development, prioritizes sustainability
and equality, and prefers self-determination in international relations
■ Beijing Consensus is essentially a mixed-economy that combines market and plan. Stable
political environment is a precondition for economic development. Economic growth aims
to ensure social harmony
■ Development best-practices should be adapted to local conditions of countries. Every
nation should have freedom to choose its own strategy and policies. This stance rejects
conditionalities and underlines self-reliance of nations
■ Strategic industries (capital-intensive, knowledge-intensive and high-tech industries)
should be constantly upgraded and indigenous innovation should be promoted
■ Financial liberalization needs to be prudent. Strategic national assets must remain under
the control of the country
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Discussion Questions

■ What is the concept of development and how does it differ from economic growth?
■ Given the great amount of wealth produced in the world each year, why have so
many nations remain underdeveloped?
■ What are the respective roles of the state and market in different models of
development?
■ How did the rich countries really become rich? Is it fair to say that the developed
countries are “kicking away the ladder” for the developing countries?
■ What are the constitutive elements of a developmental state?
■ How can we account for the evolution of development advice from Washington to
Post-Washington and Beijing consensus?

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NEXT WEEK’S PREPARATION

■ TOPIC: ENVIRONMENT
■ CONTENT: Capitalism and environmental degradation, climate change, sustainable
development
■ DISCUSSION QUESTIONS: What is the relationship between climate change and capitalist
economy? What are the political economy solutions proposed to tackle climate change?
■ REQUIRED READING: O’Brien, R., and Williams, M. (2016). Global Political Economy:
Evolution and Dynamics (5th Ed.). New York: Palgrave, Chapter 12, pp. 242-261.
■ SUGGESTED READING: Balaam, D. N. and Dillman, B. (2014). Introduction to International
Political Economy (6th Ed.). Boston: Pearson, Chapter 20, pp. 511-537.
■ REQUIRED DOCUMENTARY: An Inconvenient Truth (2006) Directed by Davis Guggenheim

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