POLITICAL ECONOMY Notes

KAMPALA UNIVERSITY
POLITICAL ECONOMY
BY
Mr. Bwire
BY MAKOHA CHARLES (MPA IUIU), BEd KYU, DIP EDUC KYU Page 1
COURSE NAME: POLITICAL ECONOMY
COURSE CODE: BPOS 1203
CONTACT HOURS : 45 HOURS
CREDIT UNITS: 3
COURSE: PUBLIC ADMIN, MASSCOM, POLITICAL SCIE.
LEVEL: DEGREE, DIPLOMA AND CERTIFICATE
COURSE DESCRIPTION:
This module is concerned with the different conceptions of politics, political-economic
frameworks operating in contemporary states, role of markets and state control in
development, the theories of creation of a good economy i.e. dependency, modernization,
colonialism, and neo-liberalism versus structural and post structural adjustments.
COURSE AIMS:
Political Economy is a discipline or branch of Political Science whose major focus is about
the role of markets and state control in economic development systems. It focuses on the
roles of colonial and post colonial states in the management of production and the entire
state resources. This is central to the development challenges in the third world.
COURSE OBJECTIVES:
At the end of this course unit a student should be able to;
i. The logic of politics in the production, distribution and consumption decisions
ii. Provide a firm conception of the debate on the roles of state vis-à -vis markets in
development.
iii. Examine the basic concepts of state led development in the third world.
iv. Explain the theories of creation of a good economy i.e. dependency- modernization
impasse.
TOPICS CONTENT: TIME

Topic. 1 Defining Political Economy 8 hrs
Why study political Economy

(the concern/ need of political economy)
Different views of scholars
 Plato
 Jesus Christ
 Mohamed (PBUH)
 Al-Farabi
 Maslow
Topic. 2 Defining Politics and Economics and showing their relationship 3 hrs
Topic. 3 The political economy frame-work and the logic (need) of politics in an 3 hrs
economy.
Topic. 4 The three Political economic systems; 9 hrs

 Market economy
 Command economy
 Mixed economy
Topic. 5 Pre-colonial political economy of Africa and colonial contacts 6 hrs
(students should make notes)
Topic. 6 The three “isms of political economy 8 hrs
 Capitalism
 Communism
 Socialism (the Tanzanian experiment i.e. Ujama)
Topic. 7 Development and underdevelopment Theory 8 hrs
a) Modernization vs. dependency theory
b) Foreign Aid (Benefits and consequences )
Topic. 8 Liberalism and Structural Adjustment Policies (World Bank, IMF) 4 hrs
Topic.9 Revision, discussion and test 3 hrs
MODE OF DELIVERY:
Lecture, group work, presentations and tutorials
ASSESSMENT:
Course work and test 30%
Final examination 70%
Total 100%
RECOMMENDED TEXT BOOKS AND KEY READINGS:
Rose, N. L. (2001). "Regulation, Political Economy of," International Encyclopedia of the

Social & Behavioral Sciences, pp. 1296712970
Leroux, Robert (2011), Political Economy and Liberalism in France : The Contributions of
Frédéric Bastiat, London, Routledge.
Rausser, Gordon, Swinnen, Johan, and Zusman, Pinhas (2011). Political Power and
Economic Policy. Cambridge: Cambridge U.P.
TOPIC 1: SOME KEY DEFINITIONS OF POLITICAL ECONOMY
A classic definition of the term was articulated in 1877 by Friedrich Engels: "Political
economy, in the widest sense, is the science of the laws governing the production and
exchange of the material means of subsistence in human society”.
The term political economy is subject to multiple understandings. Its origin can be found
in the work of
Adam Smiths Wealth of Nations, of David Ricardo and Karl Marx. In this body of work, the
term referred to “the conditions of production organization in nation-states”
Today, the term is defined as analysis that studies the linkages between politics and
economics, drawing on theories of economics, law as well as political and social sciences.
Economic theory traditionally focuses on market decisions, where voluntary exchange
leads to Pareto efficient7 outcomes. The decisions that political economy focuses on are
those where the market does not produce these desired outcomes for example, in the
case of over-exploitation of land/resources due to unclear tenure as they are influenced
by political and not economic considerations. Hence agreements on rules that govern the
voluntary exchange are needed, such as property rights or crop rotation regulations.
Different disciplines such as psychology, international relations, law or ecology have
incorporated the meaning of political economy to study the interactions in their respective
disciplines. Ecologists, for instance, think of ways to change market incentives to address
environmental sustainability concerns.
Political economy as a discipline therefore exist just because political processes often
take place in the context of economic aspects hence making it difficult to isolate or divorce
what's purely political from economic issues.
From all the above. It realized that the major concern and duty of political economy (the
state) is to make man happy, united and physically well.
Political economy is the relationship between politics and economics: Charles Lindblom
in his book "Politics and Markets: The World's Political Economic Systems"(1977) makes
the best summary statement when he explains it to say that;
in all political systems of the world, much of politics is economics and most of
economics is also politics…for many good reasons, politics and
economics have to held together in the analysis of basic social
mechanisms and systems”
Thus politics and economics are inseparable.
MEANING OF “ECONOMICS”
A famous definition of economics is that of Lionel Robbins 1932, p. 16., Economics is the
science which studies human behavior as a relationship between ends and scarce means
that have alternative uses. If economics is the study of the optimal use of scarce
resources, political economy begins with the political nature of decision-making and is
concerned with how politics will affect economic choices in a society. Society should be
defined broadly to include not only countries or other such jurisdictions, but also firms,
social groups, or other organizations.
Obviously, we cannot go much further without being more precise about what we mean by
the term politics.
TOPIC 2: MEANING OF POLITICS

(MISCONCEPTIONS AND THE TRUE DEFINITION OF POLITICS)
MEANING OF POLITICS:
Misconceptions of Politics/ Insufficient Definitions;
1. POLITICS AS GOVERNMENT
The Germany students and professors of law were the first to define politics. Thus they
said that; politics is the government. although it is the most import part of politics, its
insufficient to think that politics only concerns itself with the government alone because it
neglects the other important element of politics (the state) because the state is made up of
4main elements i.e. people, territory(boundaries), sovereignty as well as the government
itself. Therefore this definition does not look at other elements of politics (state) other
than the government; therefore its a misconception of politics.
2. POLITICS AS A LEGAL GOVERNMENT
These Germany professors and students of law continued and defined politics as legal
government. However the term legal here is an ex-moron because there has never been
something as legal or illegal government. All governments are fundamentally legal
regardless of the means through which they attain power.
3. POLITICS AS A STRUGGLE FOR POWER (MAX WEBER; 1947)
Max Weber, a renowned Germany sociologist, politician also misrepresented politics

thus a struggle for power in society. This definition only concerns itself with conflicts,
violence and struggle for state power. Therefore state power is not the only concern of
politics.
4. POLITICS AS "WHO GETS WHAT, WHEN, AND HOW". (HAROLD LASSWELL,
1930)
Political scientist Harold Lasswell defined politics as "who gets what, when, and how".
This definition is particularly true to African politics because those in power make efforts
to acquire as much wealth as there is and also distribute resources to their people and
regions. Although this definition may hold substance in the African setting, it does not
apply in socialist, American and European politics where resources are fairly distributed
to society.
5. POLITICS AS THE GOVERNING OF MEN (AUSTIN RANNEY, 1958)
Austin Ranney in his book the governing of men (1958) discusses the relationship
between those who govern and those who are governed (the rulers and the ruled) this
definition is true to some extent where some members take part in the process of
governing (governors), while others are not part of it, submit to its will and constitute the
governed. However this definition did not explain what is to govern exactly, is all
governance politics? For example the president and the pope are all involved in governing
one in the state and another in church, are they all politicians?
6. POLITICS AS GIVING SOME AND DENYING OTHERS
The former French prime minister Pierre de-France stated that to govern is to make
choices and to do so is to give some and deny others. This definition is wrong because it
narrows down the concern and scope of politics to resource allocation and distribution to
the few.
7. POLITICS AS A DIRTY GAME (IDI AMIN, 1974)
Idi Amin misrepresented politics to say that it is a dirty game this was because of the cold
war politics from the eastern and western blocks i.e. Communists and capitalists. However
he forgot countries that did not participate in the cold war politics for example
Switzerland, Sweden
8. POLITICS AS A SCIENCE OF MANAGING SOCIETY (Y.K MUSEVENI)
Yoweri Kaguta Museveni lied and misrepresented politics to say it is a science of
managing society. The term management here refers to the mobilization of private
resources and their transformation into final goods to generate profits. This definition
therefore assumes that the state or government is operated for profits just like a private
business which isnt true
THE TRUE DEFINITION OF POLITICS

POLITICS AS THE AUTHORITATIVE ALLOCATION OF VALUE FOR SOCIETY. (DAVID
EASTON 1967)
David Eastons definition of politics as the authoritative allocation of value for society is
a widely used and accepted definition mainly because formal and substantive aspects of
defining politics are successfully combined. The definition of David Easton was considered
by most political scientists as true or realistic because of the following views:
1. Authority
In Eastons view, authority is a universal phenomenon based on the recognition that no
society can survive "without providing for some processes through which authoritative
allocations could be made if and when differences arise with regard to valued things".
Differences and conflicts, Easton writes, are part of political reality, but what distinguishes
political from non-political conflicts is their affinity with authority. Moreover, and by
virtue of its universality, authoritative value allocation is dualistic; it exists in both the
private and the public sphere.
2. Values
Public goods are those belonging to society as a whole and, as such, represent the
aspirations and interests of the collectivity. Private goods, by contrast, are the possession
of each individual. Private and public values, therefore, parallel the antinomy of collective
and individual values and goods. In the opinion of French sociologist Emile Durkheim
(1858-1917), the polarity corresponds with mans innate nature as a Homoduplex.
According to Durkheim, man is characterized by both personal (and individual), and
societal (or collective) traits; humans must be both themselves and members of a
collectivity, be it the family or the state.
3. Allocation
As Easton emphasizes, value allocation because it is authoritative is binding. But
compliance may be neither automatic nor voluntary, and the exercise of more "ultimate"
measures may become a necessity. What is required in such cases, Easton writes, is "the
imposition of force and violence to ensure conformity with allocations that are made".
Additionally, he argues, the instrument of "violence is lodged exclusively in the hands of
those who act in the name of the whole society". Max Weber agrees but is more specific.
For Weber, the state not only has a monopoly on physical coercion but the application of
such force must also be legitimate.
IMPORTANCE /LOGIC OF POLITICS

i. Defense and national security (defending national boundaries)
ii. Mobilization of scarce resources
iii. Allocate resources
iv. Bilateral or international bargaining (including trade)
v. Protecting citizens from external and internal aggressions
THE CONCERN OF POLITICAL ECONOMY
Political economy is concerned with the sustenance of all conditions that can enable man to
embark him/ herself towards productive activities to generate goods that satisfy his/her
needs. In other words Political economy is concerned with the conditions of good state in
which man can live good life. This means that it is concerned with the purpose of man in
life/our purpose in life.
This concern raises a number of questions among which the following deserve our attention:
i. What is the purpose of man in life
ii. Which political economic system is best to us?
iii. Which problems fail us to have good life?
iv. Who are we?
v. Can we have true friends without having true enemies?
In this study we are not alone; there are many successful wise men and women of opinion
that in the past who have since arrived at the highest level of intellect. Unanimously these
men and women have since been concerned with the study of how man can create a good
state in which good life can be found. These include among others;
1. Plato (the republic350BC)

2. Jesus Christ
3. Muhammad (PBUH)
4. Al-Farabi
5. Thomas Aquinas
6. Abraham Maslow
PLATO-380 BC THE REPUBLIC
The Republic is a Socratic dialogue, written by Plato around 380 BC, concerning the
definition of justice, the order and character of the just city-state and the just man
A CITY FORMED ON JUSTICE
Characteristics of the republic (not all)
 Justice
 Democracy
 Knowledge
 Education
MOHAMMAD (PBUH)
He emphasized peace in a state (Salamu- Alaikumm)
AL FARABI (870BC)
(Abu Nasr Muhammad Al Farabi)
(Al-Madina al-fadhila)
At the heart of al-Farabi's political philosophy is the concept of happiness (sa'ada). The
virtuous society (al-ijtima' al-fadil) is defined as that in which people cooperate to gain
happiness. The virtuous city (al-madina al-fadila) is one where there is cooperation in
achieving happiness. The virtuous world (al-ma'mura al-fadila) will only occur when all its
constituent nations collaborate to achieve happiness.
Al-Farabi has a number of political divisions for his world. He identifies, for example, three
types of society which are perfect and grades these according to size. His ideal virtuous
city, which gives its name to the whole volume, is that which wholeheartedly embraces the
pursuit of goodness and happiness and where the virtues will clearly abound. This
virtuous city is compared in its function to the limbs of a perfectly healthy body. By
contrast, this virtuous city is compared in its function to the limbs of a perfectly healthy
body. By stark contrast, al-Farabi identifies four different types of corrupt city: these are
the ignorant city (al-madina al-jahiliyya), the dissolute city (al-madina al-fasiqa), the
turncoat city (al-madina al-mubaddala) and the straying city (al-madina al-dalla). The
souls of many of the inhabitants of such cities face ultimate extinction, while those who
have been the cause of their fall face eternal torment. In itemizing four corrupt societies,
al-Farabi was surely aware of Plato's own fourfold division of imperfect societies in the
Republic into timarchy, oligarchy, democracy and tyranny. The resemblance, however, is
more one of structure (four divisions) rather than of content.
The single thread which joins these scholars of these different times is the concern to
construct good state in which men will be able to live good life. Man can only live good life
if he/she acquires the preferred needs of goods which satisfy his/her life. The manner by
which man can live good life is best explained by Abraham Harold Maslow
ABRAHAM MASLOWS HIERARCHY OF NEEDS
Maslow said;
The more we learn about mans natural tendencies, the easier it will be to tell him how to be
good, how to be happy, how to be fruitful, how to respect himself, how to love, how to fulfill
his highest potentialities The thing to do seems to be to find out what one is really like
inside; deep down, as a member of the human species and as a particular individual (Maslow,
1987, p. 6).
Physiological Needs (basic needs)
The Physiological Needs such as breathing, food, drink, sleep, sex, excretion are largely
(and obviously) biological and physical requirements. When they are not fulfilled, people
become preoccupied with filling those needs above all else. For example, starving people
in a war zone can be oblivious to danger when in search of food (Maslow, 1987, pp. 15-17).
Safety needs
Once the basic needs are fulfilled, other needs invariably arise (Maslow, 1987, pp. 17-18).
In Maslows hierarchy, the safety needs come after the physiological needs. Maslow used
the word safety to mean more than just physical safety. Economic, social, vocational,
psychological security all fall underneath this second tier of human needs. While safety
needs are less immediate or demanding than the physiological needs, when one loses
ones job, family, home, life savings, health insurance, etc, one is likely to feel terribly
insecure and unprotected. Fulfilling the safety needs might be likened to providing a
bumper or airbags on a car; while you dont always need them, having them gives you
some confidence that you can face minor bumps and bruises along the road of life
(Maslow, 1987, pp. 18-20).
Belongingness and love needs
As social beings, family, friendships and intimate connections get many people through the
ups and downs of life. Numerous studies have shown that the healthiest, happiest people
tend to be more involved in their communities. While there is debate on whether one
causes the other is unclear, there is some sense that having wider social connections and
relationships are an important part of being happy. Lack of interactions, human
relationships and the sense of belonging may result in depression or loneliness while an
abundance of love and community often sustain people through difficult times (Maslow,
1987, pp. 20-21).
Esteem needs
Maslow felt there was a clear distinction between love and respect or esteem. He felt that
an ability to feel self-esteem and personal uniqueness sprung from being loved and
embraced by families and communities. As individuals, we naturally wish to excel or be
exceptional, to be noticed for our unique talents and capabilities. Once one has some
measure of self-esteem and confidence, one gains the psychological freedom to be creative
and to grow as well as to be more generous to others (Maslow, 1987, pp. 21-22).
Fig:1 An interpretation of Maslows Hierarchy of Needs
Self-Actualization
What a man can be, he must be. This need we may call self-actualization It refers to the
desire for self-fulfillment, namely, to the tendency for him to become actualized in what he is
potentially. This tendency might be phrased as the desire to become more and more what one
is, to become everything that one is capable of becoming. (Maslow, 1954, Motivation and
Personality, p. 93)
The top pier of Maslows hierarchy is dubbed self-actualization. Maslow studied happy
people in order to determine what it was that made them happy or, self-actualized
(Maslow, 1987, p. 22)
THE “THREE TYPE Political Economies”
The way a countrys resources are owned and the way that country takes
decisions as to what to produce, how much to produce and how to distribute
what has been produced determine the type of economic system that particular
country practices.
1. MARKET ECONOMY (also called FREE ENTERPRISE ECONOMIES )
2. CENTRALLY PLANNED or CONTROLLED/COMMAND ECONOMY
3. MIXED ECONOMY
1. MARKET ECONOMY
USA, Japan
Private firms or individuals own means of production. They make choices about:
o What to produce
o How to produce
o For whom to produce
- What to produce is answered by consumers according their demand for goods &
services
- How to produce is answered by the businessmen. They will choose the
production method, which reduces their costs to reach the higher profit.
- For whom to produce firms produce goods & services which consumers are
willing and able to buy.
Role of government
1. To pass laws to protect businessmen & consumers
2. To issue money
3. To provide certain services police
4. To prevent firms from dominating The market and to restrict the power
Of trade unions
5. Repair and maintain state properties
Advantages:
- Goods and services go where they are most in demand and free market responds
quickly to peoples wants + wide variety of G&S
- No need for and overriding authority to determine allocation of
goods&services
- Producers and consumers are free to make changes to suit their aims
- Competition and the opportunity to make large profits, greater efficiency,
innovation
Disadvantages:
- It mis-allocates resources(to those with more $)
- It creates inequality of incomes
- It is not competent in providing certain services
- It leads to inefficiency (market imperfection)
- It can encourage the consumption of harmful goods - drugs
2. COMMAND/ PLANNED ECONOMY
E.g. Cuba, China, former Soviet Union

The State (government) owns all means of production. Individuals are not permitted to
own any property. Government + government planners make choices about What, How
and for whom to produce.
- What to produce is answered by government planners, they make assumptions
about consumers` needs and the mix of goods and services
- How to produce is answered by the gov. planners according the input-output
analysis.
- For whom to produce for consumers through state outlets. Prices cant
change without state instructions. (Restrictions)
Role of government
1. Government make the most economic decisions with those on top of the
hierarchy giving economic commands to those further down the ladder.
2. Government plans, organizes and coordinates the whole production process in
most industries.
3. Government is the employer of most workers and tells them how to do their jobs.
Advantages:
- There is more equal distribution of wealth and income
- Production is for need rather than profit.
- Long-term plans can be made taking into account a range of future needs such
as population changes and the environment.
Disadvantages:
- Vast bureaucracies employing supervisors, coordinators
- People are poorly motivated
- Planners often get things wrong shortages of surpluses of some goods
- Poor standard of living
NB:
There are no pure free market economies or pure command economies. Because of:
Command economies are impossible to regulate all markets
Free market economies cant provide public goods (defense) and can t provide merit goods
in sufficient quantity.
3. MIXED ECONOMY
All Western European
countries
The balance between state provision (government planning) and free market provision is
more or less equal. The government decides the degree of mixing. They will decide how
much business activity there will be in the private sector and the public sector.
 In the countries, where the government plays important - major economic role the social
provision will tend to be greater, taxed higher and distribution of wealth and income
more equal. (Sweden)
 Whereas in countries where the private sector plays the most important economic role,
social provision is lower with fewer free goods and services, also taxes will be lower
and the distribution of wealth and income less equal.(GB)
Some resources are allocated by the government and the rest by the market system.
Most decisions are taken in the market place but the government plays an important role in
modifying the functioning market.
Role of government
- Sets laws and rules that regulate economic life - intervention to control or regulate
markets
- Provide certain services e.g. education, police, defense healthcare
- Regulate business to ensure that there is fair competition in the private sector
- Restricts the consuming harmful goods by making them illegal or placing high taxes on
them
- Planning gives the government the power to give G&S, or money to the poorer people
PUBLIC SECTOR is responsible for the supply of public goods & services and merit goods.
These goods are provided free when used and are paid by taxes e.g. roads, healthcare, street
lighting
The central or local government makes decisions regarding resource allocation in the
public sector. In public sector, the state owns a significant proportion of production
factors.
PRIVATE SECTOR firms in response to the demand or consumers needs and wants make
production decisions
In the private sector individuals are allowed to own the factor of production.
Businesses are set up in this system by individuals to supply a wide variety of goods and
services. Competition exists between these firms.
THE ROLE OF GOVERNMENT IN A MARKET (MIXED) ECONOMY
There are various opinions of various economic thoughts about the role of government
interventions. Governments are generally argued to have four main macroeconomic goals:
- to maintain full employment
- to ensure price stability
- to achieve high level of economic growth
- to keep exports and imports in balance
Fiscal policy
Government attempts to manipulate its budget deficit or surplus to achieve economic goals
are called fiscal policy. It is generally any gov. decision about spending, taxes and borrowing.
Using this policy government can easily influence aggregate demand.
There are 2 types of instruments of fiscal policy:

a/ automatic (built in )stabilizers - are expenditures that automatically increase when the
economy is going into a recession. Conversely, they automatically fall when the economy
booms. Automatic stabilizers include: - progressive income tax
- unemployment insurance
- subsidies to agricultural products
- government purchase of excessive agricultural products
b/ active - discretionary fiscal policy - it is the deliberate manipulation of the government
spending and taxes to influence the economy, for example changes in tax rates, changes in
government expenditure structure.
Crowding-out effect - is the negative effect of the fiscal policy, when money from private
sector of the economy is crowded out to the public sector (for example by selling state
bonds or treasury bills). Therefor amount of money in private sector decreases and interest
rates increase. Result - less investment in private sector.
Laffer´s curve shows the relationship between the tax rates and the incomes from taxes. It
shows that the highest income is when the tax rate is 50%. The same income from taxes is at
the rates of 25% as well as 75%. However, the tax rate should not be higher then 50%
(forbidden area).
Expansive (inflationary) fiscal policy - policy encouraging increase in aggregate

demand. Short run expansive fiscal policy :
- results in increase in real output and employment if the resources are not used to
produce maximum potential output
- results in increase in price level if real output is near the maximum potential
output Long run expansive fiscal policy :
- results in increase in price level (inflation), but the real output remains the same
because of crowding out effect
Restrictive (deflationary) fiscal policy - policy restricting the aggregate

demand Short run restrictive fiscal policy:
- decreases real output and employment if the resources in the economy are not used to
produce maximum potential output
- decreases the prices if real output is near the maximum potential
output Long run restrictive fiscal policy:
- decrease in price level
- decrease in nominal and real interest rate
- unchanged level of real output and unemployment if private investment replaces
government expenditures
Monetary policy
Monetary policy is the attempt by government or a central bank to manipulate the money
supply, the supply of credit, interest rates, or any other monetary variables, to achieve the
fulfilment of policy goals such as price stability.
There are various definitions of the money supply ranging from M0 to M4. The central bank
has the total control over M0. However, less than 1% of M4 is made up of notes and coins. So
when the government wishes to control anything other than M0, it has to control the amount
of money in the banking system and in the wider financial system, too.
There are two types of tools (instruments) of monetary policy:

a/ direct - regulation of loans by the government institutions, regulation of the credits on
consumer goods
b/ indirect - there are 3 main tools:
- reserve ratio - determined by the central bank. It is the percentage of total deposits of a
bank that has to be kept in the form of cash. If the central bank alters the value of the
reserve ratio, it will actually influence the size of money supply. The higher the reserve
ratio, the lower the size of money supply.
- discount rate - it is the rate at which the central bank lend money to the commercial
banks in need. It directly influences interest rates of commercial banks. If it increases,
the interest rates increase, too.
- open market operations - selling the bonds or treasury bills decreases the amount of
money in the circular flow, buying them increases the size of money supply in the
economy.
Expansive monetary policy - increases the amount of money in the circular flow of income.
Restrictive monetary policy - decreases the amount of money in the circular flow of income.
If the demand for money increases, the central bank can control either interest rate or
money supply. There are 2 different opinions whether to control money supply or interest
rate:
1. The Keynesian economists think that regulation of interest rates is important. They argue
that it is important to regulate aggregate demand, which consists of investments, household
spending, government expenditures and net exports. Investments are most dependent on the
interest rates.
2. The monetarists argue that it is is important to control money supply. The base of their
thinking is the quantitative theory of money, which says that money supply can influence price
level (inflation) as well as real output (economic growth).
Income policy
Income policy is the policy designed to limit the growth of incomes directly. It can help to
redice inflation caused by supply-side factors. By imposing maximum pay increases, the
government breaks inflationary expectations and hence the cost push spiral and helps the
economy return to price level stability.
Social policy
It is a policy whose main aim is to achieve certain social goals. There is no specific social
policy. It is usually some kind of monetary or fiscal policy. Taxation is an example. Suppose the
distribution of income is inequitable. To redistribute the income, the government can impose
the taxes which reduce the income and wealth of richer groups in the society and use the
money collected to increase the income and wealth of poorer groups.
When the government wants to improve the level of education, it can increase its spending on
it and ehen it wants to improve the living standard of low paid workers, it can impose
minimum wage. These are considered to be social policies but in origin they are fiscal.
Foreign trade policy

It is a policy that can influence the workings of international trade. All countries choose to
adopt protectionist policies to some extent because they want to protect their economies
from destruction by huge imports or dumping. These protectionist policies are called trade
barriers. The most important ones are tariffs and quotas, but there are some others as well.
A tariff is a tax on imported goods and sometimes called an import duty or a customs duty. It
is used to restrict imports so that it raises the final price of imported goods, thus lowering the
demand of them. A quota is a physical limit on the quantity of the good imported. It is an
example of a physical control.
THE THREE ISMS OF POLITICAL ECONOMY
a. Capitalism
b. Socialism
c. Communism
Capitalism
Capitalism is often defined as an economic system where private actors are allowed to own
and control the use of property in accord with their own interests, and where the invisible
hand of the pricing mechanism coordinates supply and demand in markets in a way that is
automatically in the best interests of society. Government, in this perspective, is often
described as responsible for peace, justice, and tolerable taxes. Capitalism, as I define the
term, is an indirect system of governance based on a complex and continually evolving
political bargain in which private actors are empowered by a political authority to own and
control the use of property for private gain subject to a set of laws and regulations.
Workers are free to work for wages, capital is free to earn a return, and both labor and
capital are free to enter and exit from various lines of business.
Capitalism relies upon the pricing mechanism to balance supply and demand in markets; it
relies on the profit motive to allocate opportunities and resources among competing
suppliers; and it relies upon a political authority (government) to establish the rules and
regulations so that they include all appropriate societal costs and benefits. Government and
its agents are held accountable to provide physical security for persons and property as
well as the laws and regulations. Capitalist development is built from investment in new
technologies that permit increased productivity, where a variety of initiatives are selected
through a Darwinian process that favors productive uses of those resources, and from the
periodic modernization of the legal and regulatory framework as indicated by changing
market conditions and societal priorities. Capitalist development requires that government
Questions
 Explain the types of capitalism
 What are the advantages and disadvantages of capitalism?
Socialism
A political and economic theory of social organization that advocates that the means of
production, distribution, and exchange should be owned or regulated by the community as
a whole.
HISTORY OF SOCIALISM
Socialism as a mode of production that can be traced as far back as the 16 th century at a
time when the capitalist mode of production experienced tremendous contradictions
which were inherent with in it. In order to maximize production, the capitalist laws of
necessity were forced to minimize the cost of production including labour costs. These
brought the capitalist system under great conflict with the laborers who lived on their
labour which was increasingly being under mined by the capitalist lords.
These subsequent developments therefore led to the emergence of labour unions which
were meant to collectively fight for the welfare at the labourers and it also gave way to the
emergence of the socialist mode of production.
This mount captured the intellectual world through the famous works of Karl Marx and
Fredrick Angles in their famous work called the communist manifesto.
In 1911, the 15t socialist revolution against the evils of the Prussian heads headed by
Vladimir Lenin and the labourers who were known as the Bolsheviks was registered. This
period marked the flourishing of the scientific socialism i.e. this was socialism that was
based on scientific principles of mobilizing the working class.
African Socialism
At the turn of the 1960's many African political movements that ware fighting for self
determination and independence embraced socialism and adopted the socialist
programmes as the were aided by the communist world against the western imperialists. It
was with in this period that socialism became popular as a political policy and alternative
to National building in Africa.
African socialism was that mode the production that was initiated and embraced by the
majority the African economies after independence in which they attempted to rejuvenate
and reclaim the pre-colonial African settings in the communal ownership of the means of
production and collective responsibility in social affairs was practiced. The African
socialism therefore varied from one country to another and in Tanzania, socialism was
believed to be the philosophy of self-reliance of the Ujama villages. In Egypt, socialism
moved with industrialization. In Libya, socialism moved with shariah laws, in Uganda, it
moved with the Nationalization of enterprises (under the common man s charter 1967)
African socialism has been and continues to be a major ideology around the continent.
Julius Nyerere was inspired by Fabian socialist ideals. He was a firm believer in rural
Africans and their traditions and ujamaa, a system of collectivisation that according to
Nyerere was present before European imperialism. Essentially he believed Africans were
already socialists. Other African socialists include Jomo Kenyatta, Kenneth Kaunda,
Nelson Mandela and Kwame Nkrumah. Fela Kuti was inspired by socialism and called
for a democratic African republic. In South Africa the African National Congress (ANC)
abandoned its partial socialist allegiances after taking power, and followed a standard
neoliberal route. From 2005 through to 2007, the country was wracked by many thousands
of protests from poor communities. One of these gave rise to a mass movement of shack
dwellers, Abahlali base Mjondolo that, despite major police suppression, continues to
work for popular people's planning and against the creation of a market economy in land
and housing.
The Socialist Experiment in Tanzania
The high rate of population growth was to frustrate economic development in Tanzania
and other places. Tanzania had become independent from Britain in December 1961 and
was led by Julius Nyerere, a man dedicated to the well being of his fellow countrymen, a
man who believed in frugality and lived that way. Nyerere was against corruption. Under
his leadership, government officials and officials in his political party were obliged not to
have more than one salary, own rental property or own shares in or be directors of private
companies.
In December 1962, Tanzania left the Commonwealth and became a republic, with Nyerere
as its president. Nyerere created a single-party system and used "preventive detention" to
eliminate trade unions and political opposition.
Tanzania had little mineral or other natural resources. It was divided among dozens of
ethnicities scattered about the nation, most of them involved in small-scale subsistence
farming. Nyerere believed that western-style economic policies were unsuited for
Tanzania. He drew from the ancient African tradition of sharing in an effort to create what
he saw as a special kind of African socialism. His idealism encouraged young volunteers
from places such as the United States, Britain and Sweden to come to Tanzania to help
develop the country. From the industrialized West came assistance in the form of loans. But
Nyerere wished to develop Tanzania without depending heavily on Western assistance.
In the early 1970s, Nyerere ordered the forced transfer of people to collective farms, and
there was resistance and the burning of villages. Nyerere's campaign pushed the nation to
the brink of starvation and made it dependent on foreign food aid. In 1974, after ten years
in office, Nyerere admitted failure. He spoke of Inequality and poverty in the cities. He
described poverty as "the experience of the majority of our citizens." The country was
experiencing shortages of cooking oil and gasoline. Hotels in his capital, Dar es Salaam,
were falling into disrepair. There had been a movement of people to the big city, and in the
capital street gangs were coming into existence. Nyerere deplored his country's continued
dependence on foreign assistance and its deficit financing.
He made Swahili the national language. Literacy in Tanzania increased from 20 percent in
1961 to 90 percent by 1983. With good rural health services, life expectancy (at birth) in
this period rose from 35 years to 52. But food production was not keeping up with
population growth.
Exports of products such as tea and coffee were not enough to buy an abundance of new
tools for agriculture such as tractors or enough to pay for the importation of oil. Fifty
percent of the earnings from exports went to paying back money borrowed from abroad.
Tanzania's tourist industry failed to develop, foreign vacationers preferring to go to Kenya
because transportation to Kenya cost about half that of traveling to Tanzania's game parks.
In 1976, Nyerere abolished his country's 2,500 independent farming cooperatives, in part
because they were politically uncontrollable. The organization that he put in their place ran
deficits and soaked up most of Tanzania's investment capital.
Nyerere's socialism had produced what some described as a bloated government

bureaucracy. In the early 1980s, communal agriculture was in ill-repute in the world, as in
China where Deng Xiapeng was now leader. In 1983, Nyerere declared that the government
would again permit private enterprise in farming, including companies investing in private
commercial farms. Nyerere agreed to cut government subsidies and to cut state run
organizations. Faced with famines and mass starvation, Nyerere resigned in 1985, after
twenty-four years as his nation's president. He hand-picked his successor, Ali Hassan
Mwinyi, and the new regime began dismantling government controls over the economy.
Socialism in Tanzania was launched on 7 th July 1967 on sabasaba day in the famous Arusha
declaration by His Excellency the president of Tanzania Mwalimu Julius Nyerere
Kambalage
According to Nyerere, socialism in Tanzania was seen as an attempt by Tanzania to

distance themselves from the exploitative imperialist world .It was also envisaged as the
renewal of the indigenous African societies that were very crucial in ensuring Coherency.
Nyerere also thought that the introduction of socialism would mark a turning point in the
country's economic recovery. Through the Ujama villages, the following were done with
the intension of ensuring that the cardinal aims of the Arusha declaration were achieved.
1) A one party state system was declared and Chama-chamapenduzi was the only
political party that was meant to operate. Thru this one political party, organs were
established and the ultimate result was the creation of villages called the Ujama-
villages. These Ujama Villages were meant to be model village. Thru these organs
Nyerere managed to centralize the administration in Tanzania and it was the duty
of the state to provide facilities such as water, food, health, etc to the people in these
villages. Through the same villages, people were close to each other sharing similar
interests.
Tribal and religious differences were diffused, health services were provided to the
vast majority, basic education at primary level was equally provided to many and
the school going children and a National language was founded.
2) By establishing Swahili as a National language, Nyerere succeeded in

consolidating National Unity and many of the western theoretical works were
also translated into Swahili.
3) In the same reign, Nyerere embanked on a 5years' industrialization programme in

which small scale but appropriate industries that were more relevant were
emphasized and many of these were agro-based. This therefore meant that
agriculture had to be promoted hence both the backward and forward linkages
between the agricultural sector and the industrial sector.
Through the Ujama-villages, Massive Campaigns for the provision of health services such
as immunization where brought close to those who needed them and many of the
Community members had access to them. On the whole therefore, African socialism was
seen as a mode of production that would minimize the gap between the rich and the poor
which of course would reduce the income inequality gap.
In 1977, 10yrs between a 10yrs programme was launched by Nyerere arguing that the
10yrs in which he planned to implement his socialism had not been long enough a period
for Tanzania to witness and enjoy the fruits of African Socialism.
Despite the achievements registered during the socialist period in Tanzania, Nyerere and
his regime the African socialism came under great pressure and subsequently they
succumbed to those pressures when in 1984, he voluntarily declared that he would retire
from the presidency of Tanzania.
Throughout his leadership however, Nyerere had so much centralized both the political
and economic powers in Tanzania so much so that when the vice president reached out
castigating the central government, he was reported dead in a mysterious car' accident.
Throughout the Nyerere's time, It was very difficult to talk about chama-chamapenduzi
with out mentioning Nyerere and the vice versa.
Through chamachamapenduzi, Nyerere managed to establish and maintain an autocratic

rule for nearly 3 decades deprived and disenfranchised the people of TZ. The absence of
democracy in TZ. inturn made people to forget the successes that had been attained
through African socialism.
Nyerere's government was also associated with extravagant spending by the government
officials hence corruption was the order of the day. There were no mechanisms for
accountability as would be found in competitive and open governance.
Similarly, the National security was shaken and this was as a result of the state inspired
kidnaps and arrests and many of the opposition leaders were detained with out trial. Social
organizations such as pressure gaps were out-lodged thus undermining the development
of democracy in the country.
Worse still, Nyerere misconceived African Community as being static in this regard, little
invention and innovations were done on the part of the leadership to modernize the
African socialism.
Like any other 3rd world country, TZ, lacked the necessary resources that were required to
implement the process of de linking her economy from the metropal.
Economically, TZ became isolated and due to lack of capital, the living conditions of the
people in TZ worsened and living in the Ujama villages was comparable to living in
concentration camps during the colonial days.
Health services in these villages also became minimal and insufficient as no repairs were
carried out at all which later led to the depreciation of the social infrastructures which had
been put in place. This had a negative impact on the whole economy in TZ thus during the
cold war in which many countries in Africa identified with the capitalist block, because
regional production became politically unstable. For example in 1977 the East Africa
community collapsed as both Uganda and Kenya agreed that socialism which had been
embraced by TZ had made the operations within the community's activities impossible
with out the communist block support, TZ did not survive. This was worsened by the fact
that the country was experiencing a number of political challenges and multiparty
democracy was steadily becoming popular hence crumbling Nyerere's socialism.
Nyerere also over estimated the contribution of the political leadership in the country and
he therefore ignored the fact that, all National programmes could not necessarily be
sustained by the so called dedicated leadership, but rather than a fully fledged democratic
process.
Because of the above two situations, Nyerere had been rated among the most progressive
African leaders for having steered the country forward in National Unity while at the same
time, he maintained National stability over time for his vision about the common man in
the process of Nation building. On the other hand, he is seen as a great detractor of
National development in Tanzania.
THE UJAAMA (SOCIALISM) POLICY IN TANZANIA
 Ujaama as stated earlier is a Swahili term meaning 'brotherhood' or 'family hood.

 Ujaama was however a new economic and political ideology which Dr. Julius
Kambarege Nyerere introduced to Tanzania through the Arusha declaration of
1967.
 Ujaama policy was a consequence of the Arusha declaration of '1967 in which
Nyerere aimed at creating a self reliant economy for the people of Tanzania.
 By 1977 they were more than 2000 Ujaama villages.
Aims/Objectives of Ujaama/ Reason for the Introduction of Ujaama Policy In

Tanzania.
1. Ujaama aimed at attaining self reliance in Tanzania. This would be achieved by

improving agriculture in order to increase peoples incomes, improving
agriculture, involved establishing communal villages to resettle peasants and
introducing new larges farms.
2. It aimed at increasing production in Tanzania. This would be achieved by

encouraging communal farming.
3. It aimed at promoting national unity. This would be achieved by putting people

in communal villages and by encouraging the use of Swahili at promoting
solidarity and cooperation among the people so as to eliminate the social and
economic differences (classes).
4. It aimed at promoting solidarity and cooperation among the people so as to

eliminate the social and economic differences (classes)
5. It aimed at extending social services to rural areas. This was to be achieved by

establishing communal villages where the government would provide for the
people e.g. health. Education, water, roads etc.
6. It aimed at cultural transformation in Tanzania. This would be achieved by

discouraging the European habits which people had acquired during the
colonial time and by encouraging them to stay together where they would
relearn African traditions.
7. It aimed at modernizing Tanzania. There was need to reform the economy

which had been heavily exploited by the German and British colonialists.
8. It was aimed at attaining national defense in the whole of Tanzania national

defense would be achieved by encouraging each communal village to develop
its own defense.
9. It was introduced to fight corruption and inefficiency. This would be achieved

by provision of Resources to communal villages so as to avoid~ wastage which
was common in the central Government.
10. It aimed at acceleration economic development in Tanzania to that Kenya and

Uganda were.
11. It aimed at Africanizing the Tanzania economy. This was aimed at eliminating
foreign control in Tanzania economy. Foreigners remained controlling the
economy after independence.
12. Ujaama was aimed at increasing investment domestically, as it were the case
with Uganda and Kenya. Tanzania had tried to attract foreign investments but
failed. For this reason ujaama was introduced.
13. It aimed at creating an egalitarian /classless society in Tanzania, ujaama was

introduced to destroy the capitalism which the colonialists had introduced but
which had divided up the people into the rich and the poor.
14. It was introduced to fight poverty. This is why communal villages were
introduced to make people work hard together so as to accumulate wealth and
exported goods. It aimed at utilizing natural resources effectively, e.g. land,
minerals, oil, cattle etc such resources would be developed to produce wealth.
15. It aimed at nationalizing the major sector of the economy e.g. banks, industries,
plantations, land, etc. All these sectors were put under government control.
16. It aimed at providing good leadership in Tanzania. Ujaama aimed at the

production of good leaders from with in the community to serve the people.
17. It aimed at reducing rural- urban migration where many peopled moved into
town and remained unemployed since there were few jobs in cities.
18.To create many Ujaama Villages for local people to stay in.
Achievements of Ujaama Policy.
1. Land re-distribution the government embarked on its resettlement policy whereby

land was re-distributed to the peasants in the newly created Ujaama villages e.g. in
Mwenge village. No body could complain of being land less.
2. Agricultural production increased, this was because the people were resettled in
fertile areas where agriculture was possible. As result of collective farming, there
was a huge production of maize, cassava, ground nuts for food and export .e.g.
Mwenge village.
3. Growth of small scale industries. The Ujaama policy stimulated the growth of small
scare industries such as fertilizers, pesticides, hoes, etc which produced products
that were on demand in the settlement villages.
4. National defense and security. The Ujaama policy emphasized the training of local
defense personnel to provide army. This has helped Tanzania to avoid civil wars and
coup-de tats.
5. It helped to check against neo-colonialism. Nyerere realized that economic
dependence on western capitalist countries would deprive the Tanzanians of their
independence. So he discouraged foreign aid and called for self reliance for quite
some time, he was able to achieve success though in the long run this failed.
6. Enjoyment of social services. Efficient mobilization made it easier for government to

provide social services such as education, medical services and water to the people
through extensive government funding, the illiteracy level were reduced in the
country
7. Attainment of national unity. Through a conscious policy of resettling people of

diverse origins in the same villages, government was able to create a sense of
national unity; they started looking at themselves as brothers and sisters.
8. It made Swahili a national and official language; this was aimed at transforming
African cultures and eliminating Western culture which had been introduced by the
whites.
9. Ujaama promoted patriotism, (the love for one's nation) as a result of putting
people together in villages; they worked together and spoke the same language all
in the interest of the country.
10. Ujamaa led to Africanization of Tanzania's economy, through this policy, the
government was able to nationalize key sectors of the economy like agriculture,
industry, banking etc.
11. Employment opportunities through the encouragement of self-help projects
government policy emphasized the traditional African value of communal work. It
emphasized the view that every body was a worker and discouraged idleness, hence
employment for all.
12. Proper resource utilization. The Ujaama policy emphasized the maximum utilization
0fTanzania's resources for the benefit of all Tanzanians. It was cultivated and
farmed.
13. Better farming skills and techniques were provided to the peasant farmers through
the provision of extensive services. Skills of re-a forestation, irrigation were
provided.
14. Growth of urban centers. The bringing together of many Tanzanians led to the
creation of urban centers which became the basis of socialization, marketing of farm
products and provision of health and education services
15. It led to uniform rural development in form of feeder roads, schools, setting up of
cooperative movements and the like.
16. The Ujaama policy made Tanzania famous. A number of researchers from all over
the world visited Tanzania and wrote books on the success and limitation of the
Ujaama policy.
Weaknesses of the Ujaama Policy
1. Ujamaa killed the initiative of the people to develop their country. People with
talents and natural skills were denied opportunity to test their abilities.
2. It failed to industrialize Tanzania because private and foreign investors were not
allowed. Tanzania only remained with a few agro-processing industries e.g. cotton
ginneries and coffee canneries.
3. It led to poverty in Tanzania, this was because the country depended largely on
agriculture, however then agricultural prices collapsed and many people became
poor.
4. The policy was based on a wrong assumption that Africans were egalitarian
(without classes) yet there were classes of the rich and the poor in Tanzania
and as such the rich refused to support the programme.
5. Ujamaa failed to provide adequate services to the people; it was too hard for the
government to reach all villages due to poor roads. The policy affected labour
productivity as people looked at it as forced labour yet even the farmers were paid
low prices for their goods hence discouraging labour productivity.
6. Ujamaa project lacked sound plans and researches on whether it could succeed; it
was merely an experimental thing which failed finally.
7. The policy affected family ties as many people were taken to settle in new areas
(Homes) and this made the policy to be rejected.
8. The policy led to the outbreak of famine as the government put more emphasis
only on the cash crops like coffee, cotton sisal while ignoring food crops.
9. The central government became dictatorial, other parties were banned.
10. It caused economic problems to the people of Tanzania; this was because the
people who were given the responsibility of managing the project lacked the
experience and skills of handling it and hence failed to win the support of the
intellectuals in Tanzania, and they opposed the policy and referred to it as
backward and traditional.
11. Ujamaa weakened the government's ability to provide for the needs of the people in
villages, this was because Tanzania had limited resources
12. It failed to unite the people of Tanzania as it created a gap between the rich and the
poor as most of the government officials embezzled government funds and thus
became over rich.
13. It failed to capture the support of the youth, the youth refused to go back to villages
as they preferred white collar jobs in towns.
14. There was increase in crimes, drug abuse, gambling and prostitution due to urban
congestion and unemployment.
15. It led to the development of slums as towns grew so many small but over crowded
centers developed however with lack of services like roads, hygiene, education and
health.
16. Ujamaa increased corruption among government workers and implementers; they
swindled government funds which were meant for provision of social services.
17. Africans lost their ancestral land and burial sites; this was due to forceful
resettlement of people in communal villages.
18. Ujamaa prolonged Nyerere's stay in power, he ruled from 1967 to 1985 when he
eventually retired due to old age.
19. It isolated Tanzania from the outside world especially from the capitalistic
countries like America, Britain who hated Tanzania for having chosen to go
socialist, even international organizations like IMF and World Bank reduced
spending on Tanzania.
20. It led to formation of one party politics in Tanzania; it was only Chama Chama
Mpinduzi party that existed.
Pre-colonial African political Economies (STUDENTS MAKE NOTES HERE)
DEVELOPMENT AND UNDERDEVELOPMENT THEORIES
Modernization Theory
Historical Context (1940s and 50s)
By the end of WW2 it had become clear that despite exposure to Capitalism many of the
countries of the South had failed to develop. In this context, in the late 1940s,
Modernisation Theory was developed. Modernisation theory had two major aims
 It attempted to explain why poorer countries have failed to develop, focussing on

what cultural and economic conditions might act as barriers to development
 It aimed to provide a non-communist solution to poverty in the developing world

by suggesting that economic change (in the form of Capitalism) and the introduction
of western values and culture could play a key role in bringing about
modernisation..
Why countries are underdeveloped: Cultural and economic barriers to development
Modernisation theorists argue that there are a number of cultural and economic barriers
that prevent traditional societies from developing.
Cultural barriers are seen as internal to the country it is essentially their fault for being
backward. Western culture, on the other hand, is seen as having a superior culture that has
allowed for it to develop.
Traditional Values prevent economic growth Modern Values inspire change and economic
and change growth.
Simple division of labour, less specialised job Complex division of labour, individuals tend to
roles, individuals rely on a few dozen people in have very specialised jobs and rely on thousands
their local communities for basic needs to be of others for basic needs to be met
met.
Religious beliefs and tradition influence day to Rational decision making (cost benefit analysis
to day life (resistance to change) and efficiency) are more important.
Stronger community and family bonds and Weaker community and family bonds means
collectivism more individual freedom.
Affective relationships Meritocracy people are more motivated to

innovate and change society for the better.
Patriarchy Gender equality
Economic barriers to development
These are barriers which may make developing countries unattractive to investors.
 Lack of infrastructure
 Lack of technology
 Lack of skills in the work force
 Political instability
 Lack of capital in the country
See the next sheet for details of modernization theory
Modernisation Theory 2: How countries should develop
Rostow believed that an initial injection of aid from the west in the form of training,
education, economic investment etc. would be enough to jolt a society into economic
growth overcoming these cultural barriers.
Rostow suggested that development should be seen as an evolutionary process in which

countries progress up 5 stages of a development ladder
Rostows five stage model of development
Stage 1 Traditional societies whose economies are dominated by subsistence farming.

Such societies have little wealth to invest and have limited access to modern industry and
technology. Rostow argued that at this stage there are cultural barriers to development
(see sheet 6)
Stage 2 The preconditions for take off the stage in which western aid packages brings
western values, practises and expertise into the society. This can take the form of:
 Science and technology to improve agriculture

 Infrastructure improving roads and cities communications
 Industry western companies establishing factories
These provide the conditions for investment, attracting more companies into the country.
Stage 3 Take off stage The society experiences economic growth as new modern
practices become the norm. Profits are reinvested in infrastructure etc. and a new
entrepreneurial class emerges and urbanised that is willing to invest further and take risks.
The country now moves beyond subsistence economy and starts exporting goods to other
countries
This generates more wealth which then trickles down to the population as a whole who are
then able to become consumers of new products produced by new industries there and
from abroad.
Stage 4- the drive to maturity.
More economic growth and investment in education, media and birth control. The
population start to realise new opportunities opening up and strive to make the most of
their lives.
Stage 5 The age of high mass consumption. This is where economic growth and
production are at Western levels.
Variations on Rostows 5 stage model
Different theorists stress the importance of different types of assistance or interventions

that could jolt countries out their traditional ways and bring about change.
 Hoselitz education is most important as it should speed up the introduction of

Western values such as universalism, individualism, competition and achievement
measured by examinations. This was seen as a way of breaking the link between
family and children.
 Inkeles media Important to diffuse ideas non traditional such as family planning
and democracy
 Hoselitz urbanisation. The theory here is that if populations are packed more
closely together new ideas are more likely to spread than amongst diffuse rural
populations
Criticisms of Modernisation Theory
1. The Asian Tiger economies combined elements of traditional culture with Western
Capitalism to experience some of the most rapid economic growth of the past 2
decades.
2. Ignores the crisis of modernism in both the developed and developing worlds.
Many developed countries have huge inequalities and the greater the level of
inequality the greater the degree of other problems: High crime rates, suicide rates,
health problems, drug abuse.
3. Ethnocentric interpretations tend to exclude contributions from thinkers in the

developing world. This is a one size fits all model, and is not culture specific.
4. The model assumes that countries need the help of outside forces. The central role is
on experts and money coming in from the outside, parachuted in, and this
downgrades the role of local knowledge and initiatives. This approach can be seen
as demeaning and dehumanising for local populations. Galeano (1992) argues that
minds become colonised with the idea that they are dependent on outside forces.
They train you to be paralysed and then sell you crutches. There are alternative
models of development: See sheet no
5. Corruption (Kleptocracy) prevents aid of any kind doing good, Much aid is siphoned
off by corrupt elites and government officials rather than getting to the projects it
was earmarked for. This means that aid creates more inequality and enables elites
to maintain power
6. There are ecological limits to growth. Many modernisation projects such mining and
forestry have lead to the destruction of environment.
8. Social damage Some development projects such as dams have lead to local
populations being removed forcibly from their home lands with little or no
compensation being paid.
9. Some Marxist theorists argue that aid and development is not really about helping
the developing world at all. It is really about changing societies just enough so they
are easier to exploit, making western companies and countries richer, opening them
up to exploit cheap natural resources and cheap labour. Joseph Stiglitz notes that
those countries that followed alternative models of development ignoring western
advice are now competing with the west, China and India are two examples.
FOREIGN AID
What is AID?
Foreign aid, is the international transfer of capital, goods, or services from a country or
international organization for the benefit of the recipient country or its population.
Aid can be economic, military, or emergency humanitarian (e.g., aid given following natural
disasters)
Advantages and Disadvantages of Foreign Aid
Anywhere in the world, there is a gap between the haves and the have-nots, the rich and the poor.
At the local level, this is obvious. A single neighborhood can house both the homeless and those
living in mansions. In a larger scale, say international, the same holds true there are rich and
highly developed nations, and then there are poor and less developed nations.
Even then, when disaster strikes such as that tsunami in Japan, the earthquakes in Bohol,
Philippines and Nepal, and the hurricane in the US no matter how rich or poor a disaster
stricken country is, a foreign aid is always welcome. So then, all of us have been giving and
receiving of foreign aid at some point. Although the initial intention of foreign aid is to help, we
should know that it does have its drawbacks.
Advantages of Foreign Aid
1. Save Lives.
At the onset, foreign aid is there to save lives particularly during calamities and disasters, like in
the case of natural disasters.
2. Rebuild Livelihoods.
Foreign aid helps rebuild lives by providing livelihoods and housing right after a disaster so that
victims can start over.
3. Provide Medicines.
Medical missions are there to offer free medical and healthcare products and services where they
are needed the most.
4. Aids Agriculture.
Foreign support directed towards agriculture helps farmers and increase food production, which
leads to better quality of life and higher quantity of food.
5. Encourage Development.
Industrial development projects supported by foreign aid create more jobs, improve
infrastructure and overall development of the local community.
6. Tap Natural Resources.

Some less developed countries do not have the ability to maximize their otherwise rich natural
resources, but with foreign support, this is possible.
7. Promote Sanitation.
Less privileged communities benefit from foreign aid aimed at providing clean water and
sanitation facilities, which reduces risk of contracting infections and diseases.
Disadvantages of Foreign Aid
1. Increase Dependency.
Less economically developed countries (LEDCs) may become increasingly dependent on donor
countries, and become heavily indebted.
2. Risk of Corruption.
There is likelihood that foreign financial support do not reach their rightful recipients, but go to
the hands of corrupt political officials.
3. Economic/Political Pressure.
A donor country may place economic and political pressure on the receiving country, forcing
them to return the favor.
4. Overlook Small Farmers.

Foreign support may only benefit large-scale agricultural projects, and not the less privileged,
small farmers who need help the most.
5. Benefit Employers.
Most development may only benefit large corporations and already-wealthy employers, and not
the people who do not have jobs or proper livelihoods.
6. Hidden Agenda of Foreign-Owned Corporations.

Foreign aid is sometimes given to a country or recipient to benefit foreign-owned corporations
and entities. So the help is not actually directed to the less fortunate, but to its own people.
7. More Expensive Commodities.

When there is development and progress, there is inflation, which causes prices of commodities
to increase, making the poor people more deprived.
Giving help to LECDs is a noble thing, but nations must properly monitor and manage the flow
of foreign aid so that they reach the people who need it, and not go right into the pockets of
corrupt and greedy entities.
THE NEW POLTICAL ECONOMY
A Case of The Asian Tigers
The Asian Tigers from Independence to Industrialisation

Development, Legitimacy, and the Role of the State: The Asian Tigers from
Independence to Industrialization
As recently as the early 1960s South Korea, Taiwan, Singapore and Hong Kong (the Asian
Tigers) were considered to be a part of the third world: Harvey and Lee rather unkindly
refer to it as economic backwardness Since the 1997 Asian Financial Crisis, praise of the
Asian Miracle has dwindled in academia , yet the Tigers still stand as rare examples of
states which have successfully developed in a manner no one could have predicted 50
years ago and at a considerably faster rate than any of our current efforts at third-world
development seem to be proceeding. Are there lessons to be learnt from the rapid
economic growth of the Tigers, from the 1960s through to the 1990s, and do these have a
practical application in contemporary development?
In 1949 Harry Truman introduced the concept of development to the world, identifying it
as a key priority of the West in order to maintain peace and prosperity amongst all the
people of the world. In the beginnings of the great ideological war against Communism, he
took care to articulate that his program of development would be based on the concept on
of democratic fair-dealing. This vision shapes the nature of development even today, with
economic development and state-building more generally predicated on the assumption
that if liberal democracy is established then all other aspects of development will naturally
follow. We see this in IMF loan conditionality, requiring liberalisation of economies in
regions where the government formally had tight control, and even in post-conflict
statebuilding exercises, where the end goal is often the establishment of democratic
elections.
I will not dispute the value of democracy, but there is a fundamental difference between a
thing being good in its own right and a good thing leading to other good things. The
examples of the Tigers show us an alternate path to development: a strong central
government guiding the economy rapidly forward through distinct stages of development
until it reaches full industrialisation. This hypothesis, the developmental state, is one that
has been argued for by a number of economists for some time now. However if we accept
this as a viable method of development two questions remain unanswered: why was it
particularly successful in East Asia, and how can we transplant it to other parts of the
world in need?
Mary, Mary, Quite Contrary: How Economists Think the Garden Grows
Before examining the economic development of the Asian Tigers it is important to identify
the theoretical framework in which they might sit. Models for economic development are
as varied as there are development economists, but at the risk of sacrificing diversity for
ease of analysis we can broadly identify three distinct models. These three models are less
cohesive blueprints and more categories of development policy broadly derived from the
Neoliberal, Keynesian and Heterodox economic traditions respectively, which for our
purposes we can identify as Market-led, Interventionalist and State-led models for
economic development.
The Market-led development model is that traditionally pushed by the IMF, advocating
market liberalisation following a classical faith in the rationality of market actors. The
blame for the failures of some economies and the success of others is placed at the feet of
interfering governments, and the removal of tariffs and other barriers to trade
liberalisation are seen as an important initial step in the development process. According to
advocates of this model for development, a free market will naturally result in development
of those industries that are most efficient, described in HOS theory as specialisation in
production of goods produced using their relatively-abundant factor (to the world market).
In practical terms, the liberalisation of both the domestic market and international trade is
expected to result in semi-sustainable economies relying on export of either raw materials
or (in land-scarce, labour-abundant states) perhaps even the product of light industry to
balance the import of the machinery and other tools needed for these industries. While
critics point out that this leaves high value-added industries controlled by the developed
countries of today, with the countries pursuing this model stuck with low-value-added
industries like agriculture, resource extraction, and at best light industry, advocates would
respond that it is still a clear improvement over the current situation of developing states.
The second model for economic development proposed is what we might call the
Interventionalist model. This model broadly follows from the writing of Lord Keynes and
his views on the role of government in moderating the errors of the free market when
necessary. The Interventionalist development model acknowledges the role of actors in the
free market but also the need for government action and intervention in stimulating
growth and reducing unemployment Actors may be rational, but oversight is needed to
stabilise output. Chandavarkar, while refuting the existence of a Keynesian model for
development, does concede that he presented the first economic rationale for a central
bank as a development agency, setting the stage for a development model in which both
government and market work together to achieve economic growth and ultimately
development. The actual policies pursued by the state will be highly reactive and tailored to
the needs of the market.
This skepticism regarding the ability of market actors is taken to its logical conclusion in
our third model for economic development, the State-led model. This is borne out of the
Heterodox tradition, as it refutes a basic principle of classical economics that what is good
for the rational actor is good for the economy as a whole. The criticism is hinted at above in
the limitations of market-led growth, as rational actors will always focus on the optimal
activity available to them at the time of decision making, whereas development should
always focus on improving future activities. The clearest way to illustrate this is with an
example in the two-factor HOS tradition: given Country A s high level of industry and
skilled labour, and their trading partner Country B s high level of unskilled labour, the
optimum activity for entrepeneurs in B to engage in would be along the lines of light
industries or resource extraction. This unfortunately reinforces the imbalance in value-
added activities between A and B. For B to develop its industrial base and ultimately
engage in higher value-added activities in the future, it would require considerable
investment in activities that currently are sub-optimum. As rational actors would never
engage in sub-optimum activities, it requires the guidance of the state to invest in those
industries which will (hopefully) pay off in future, and therefore develop the economy as a
whole.
This model is essentially a reworking of the developmental state hypothesis used by
commentators to explain the very cases we will be examining, but it has not received much
favour as a model for development. Chang and Grabel suggest that this results from the
challenge a state-centric development model posed to the Neoliberal establishment, an
argument discussed in a later section. As a model, Chang and Grabel suggest the following
policies should be pursued by the government seeking development: trade protectionism
while new industries are developing, a clear strategy for systemic development of higher-
value-added industries, a cautious approach to privatization and the nationalization of
some industries where appropriate, a relaxed approach to intellectual property law and
strict control of both capital and foreign debt.
As we will see below, and unsurprisingly given its origins in analysis of the Asian Tigers
themselves, all of the countries under discussion conform to the state-led development
model in contrast to the market-led or state-intervention models. However supporters of
the market-led and interventionist models would argue that while state-led development
may have been effective in East Asia, it is not applicable to other parts of the world. The
failures of state-led economies like China under Mao, North Korea and the Soviet Union all
indicate that strong states do not necessarily mean strong economies there must be some
other factors missing from past analyses of development in the Asian Tigers that can make
the state-led model work.
The Tigers Stripes: Case Studies in Successful State-led Development

South Korea
In 1945 South Korea was finally made independent of Japanese rule, only to immediately
be placed under US military occupation. The long-awaited autonomy it achieved was
rapidly overshadowed by the Korean War (1950-3) with the North, which destroyed two-
thirds of existing production facilities worth some three times the GNP. The long road from
these humble origins to its current position in the G20 can be analyzed as a systemic
movement in four discrete phases, beginning in the Rhee era but mostly taking place under
the Park government (both before and after the establishment of yushin government).
The first phase of development constituted recovery from the devastation of the war, with
an average of 15.9% of GNP coming from US aid (with a peak of 22.9% in 1957).64% of
investment savings were US-owned, and Import Substitution Industrialization was adopted
with 30% of aid going towards agricultural equipment. Workers unions were suppressed
by the Rhee government to keep labour cheap. Korean economic growth in this period was
highly dependent on US aid and investment savings and vulnerable to intense fluctuations.
The Park coup in 1961 demarcates the second phase of Korean economic development: the
development of light industries and export-oriented growth. Having recovered from the
war and no longer entirely reliant on US aid to pay for imports, the Korean economy could
now begin to utilize its cheap labour force to grow through exportation of light industrial
goods. Here we begin to see the first clear departure from the Market-led or even
Interventionalist models of growth in the adoption of the First Five-Year Economic
Development Plan (1962). This established clear macro-economic growth targets in
investment, industrial structure and trade balance, and established trade policy, industrial
policy, and macro-economic policy in pursuit of these goals. This was called guided
capitalism, in which the state shall either directly participate or indirectly render
guidance to key industries, particularly the labour-intensive light industries that would
lead to rapid export growth.
To return to classical terminology, the optimum activity at this phase in Korean history for
an individual actor to participate in would be those same light industries. Unfortunately if
this were the case then the Korean economy would have been perpetually stuck in the
same phase with no high-value-added industries being developed. Obviously this did not
happen. While growth in the early 1960s was fantastic, as high as 10% in some years, the
Park government did not see this as a sustainable means of growth. The foreign currency
earnt through this explosion of export was reinvested in the advanced technologies and
machinery which was necessary to progress to the next stage of development, while tariffs
and subsidies were used to shield growing advanced industries from the international
market.
This set up the third stage of development, articulated in Park s second Five-Year Plan: the
development of heavy and chemical industries, supported by legislation and key policy
instruments. Foreign capital, though still under heavy government restrictions, was sought
to help bolster growth and exports grew at almost 39.2% per annum. This phase of
development has lasted the longest of any thus far, with export-driven growth from heavy
industry carrying Korea forwards until the early nineties. During this period factor input
increases, both in capital accumulation and in quality of labour through education,
accounted for a massive degree of growth in industrial output, setting up Korea well for the
next phase of development.
The 1990s saw a number of significant changes in the South Korean economy and marked
the fourth and current phase of development, the push into high tech industry. The World
Bank data on high-technology exports sadly only extends as far back as 1988, but even this
shows a dramatic change. In 1988 high-technology exports made up only 15% of total
export, but this number increases almost by an entire percentile every following year.This
international demand for Korean goods, coupled with a dramatic increase in domestic
consumption and higher standards of living across society, marked the definite movement
of Korea into successful state status.
In Koreas economic history we can identify four discrete phases of development: a period
of Import Substitution Industrialisation; the development of light industry and export-led
growth while reinvesting in and protecting heavy industry; the development of heavy
industry, increases in labour quality through education and permissal of limited degrees of
foreign capital; and finally the development of the high-tech industry, the skilled labour
required for which stimulating domestic consumption. The second through fourth phase
show remarkably steady GDP growth in all but three years: the year of Park s assassination
and the 1997 and 2003 crises.
All of this was driven by the central state with a clear end-goal in mind and a range of
effective legislative and policy tools for implementation. Aggressive reinvestment in
infrastructure, state-owned industries and clearly communicated economic plans over a
long period of time allowed for a progression through distinct phases of development even
when reinvestment in the newer phases would have appeared the less optimal to
individual market actors. It was this incessant push forward that eventually led to Korea s
development as a fully industrialised and technological economy.
Taiwan
Taiwan shares a similar story to Korea, although at least in economic terms its origins are
marginally less humble. Our story again begins at the end of a war, but Taiwan itself was
left relatively unscathed by the fighting and still bearing the remnants of Japanese colonial
attempts at development: some established agricultural exports in rice, sugar and
pineapples, basic food processing plants and a handful of textile factories. Leadership
initially adopted a policy of ISI in pursuit of subsistence, but due to bad experiences with
inflation on the mainland a more aggressive growth policy was not adopted until the USA
threatened to reduce aid in the 1950s.Only then did Jiang and the GMD begin to
industrialise along the lines we saw in Korea.
Before this period the primary sector (mainly agriculture and fishery) accounted for nearly
a third of GDP before rapidly dropping to just 7% in the industrial explosion, and food
processing (the dominant industry on GMD occupation) fell from 47% of manufactory
output in the 1950s to just 31% in the industrialised 60s, finally dropping to 12% in the
early 1980s (the end of the heavy industry era).Interestingly after the initial boom of light
industry (particularly textiles) we would expect to see from Korea s experience, light
industry remained statistically significant all the way into the 1980s
Heavy industry was quickly established, in particular steel, electronics and petrochemical,
as soon as the state ascertained that domestic and international demand was
sufficient. While other state firms were privatised during the development process to
encourage foreign investment and expertise, these industries were always seen as essential
to reconquest of the mainland and so remained firmly nationalized.
While Yongping Wu points out that small- to mid-sized firms had an important role to play
during this phase of development the state never lost its firm grip over the direction of the
economy. A key measure here was control of foreign exchange, limiting the access of
private firms to imported materials and serving both to keep up domestic demand for
processed raw materials (which was done in state firms and on sold to selected firms) and
to reduce capital risk.
Vincent Chang describes the final phase in economic development, to fully-fledged
technological state. Once the competitive advantage in labour-intensive products seemed
to be slipping (both as a result of a more educated workforce and the rising competition
from China in the late 1970s) the state essentially decided to jump before they were
pushed: the export-oriented economic structure must be upgraded to become more
technology- and skill-intensive.The states role in the inception of pivotal technologies
and in the export vigour of Taiwans information industry, as well as in key large-scale
industries like semiconductor production was immense, and as in Korea led to the
development of a substantive skilled-labour population who with their increased
disposable incomes stimulated both domestic consumption and the service industry.
Taiwan followed a similar trajectory to Korea in its progression through four distinct
stages of development, though with two exceptions of note: first that light industry played a
key role in the economy all the way into the 1980s, and second that leadership did not seek
to move beyond the first phase until threatened with aid reductions by the US. The
unexpected lack of decline in light industry once heavier industries were developed could
perhaps be attributable to the role of small- and mid-sized industries as discussed by
Chang with most heavy industries nationalised but small-scale entrepreneurship
tolerated, this is a logical industry to gravitate towards. The second point is by far more
significant, and may contain a clue as to the underlying reason that the Asian Tigers
successfully developed through state-led, rather than market-led or interventionalist,
methods.
The City-States: Singapore and Hong Kong
Singapore was perhaps the most democratic of the Tigers in its early life, if in name only:
so charismatic was the leadership of Li Guangyao that in the words of a British diplomat
politics disappeared leaving only an administrative state. After reluctantly accepting
Singapores independence from Malaysia in 1965, Li took control of Singaporean politics in
soft authoritarianism until his retirement in 2011 and much of Singapore s success is
directly attributed to his personal vision and ability.
Singapores development follows a now-familiar path. While not facing the challenges of
rebuilding after a war, Singapore stood alone as a modern city-state with too little land to
effectively feed its citizens. Food and water had to be provided for by imports, necessitating
a quick push towards export-oriented light industries to balance trade.Interestingly
Singapore sought to supplement the local lack of technical and managerial knowledge by
attracting international firms, albeit in a limited fashion, using their capital and resources
to kick-start the light industry that would provide the backbone of Singapore s economy for
the next few decades.
The 1970s saw a dramatic change in the structure of Singapore s economy, with
manufacturing and heavy industry becoming increasingly more of a priority throughout the
1970s and 80s. This was largely in response to the challenge that China s burgeoning light
industry under Deng posed to Singapores output, and was pushed forward by the central
government through a combination of reinvestment of wages in industry, infrastructure,
housing and communications through the Central Provident Fund and an increase in
minimum wage, forcing employers to seek more efficient modes of production.
Unlike Taiwan and South Korea, Singapores move to the final phase of development was
not marked by the establishment of the high-tech industry but rather by fulfillment of
Stamford Raffles original vision for Singapore as the trading and financial hub of Southeast
Asia.Trade, import refinement and finance all require skilled labour, much like high tech
industry, and Singapores unique geographic position and recent market liberalisation
allow this to serve as the high-level industry that cements its position as a fully developed
nation, just as high tech industries do for South Korea and Taiwan.
Given todays liberal markets, and the nominal democracy of Singapore s modern history, it
is tempting to think of Singapore as an example of liberal market-led development in
action. However the importance of the Central Providence Fund in establishing the
infrastructure needed for heavy industry and the dominant role of Li in both politics and
economic direction both suggest that the state was the principal mover in the development
of Singapores economy, with liberal elements only being introduced in the late phases of
development to pave the way to a financial and trade hub.
Hong Kong is similar in many ways to Singapore, although it is notable for being the most
consistently laissez-faire (and therefore market-led) of the Tigers. As in Singapore the
pressing need to balance trade deficits due to poor agricultural potential led to a rapid
development of light industry, but then advocates of market-led development would argue
that the next steps through to trade and financial services would have been a logical step
for market actors to take, given the proximity to China and the historical nature of Hong
Kong as a trade port.
The importance of market actors in the development of Hong Kong cannot be denied, but
there are some features of development (glossed over in Neoliberal accounts) that suggest
that the state had a not-insignificant role in guiding the economy. In particular Vogel points
to the allocation of public funds, with the vast majority diverted to developing the
infrastructure that would be required by heavier industries roads, universities, and most
interestingly land development specifically for the use of factories; and all this a good
decade before there was any significant market-led demand for these public goods. The
state may have left market actors to find their own way, but they were not subtle about
putting a map in their hands.
Hong Kong, like Singapore, ended up as a financial centre for its region as well as a major
industrial producer not bad for a former entrepot. It is unusual among the Tigers for
having a fairly consistent laissez-faire approach to the market, and is by far the closest to a
market-led model of development. However this is not to say that the state had no hand in
pushing development forward when the market might have been content to stay in one
phase.
When taken into consideration with the other Tigers, we have a clear idea of how their
economies developed. In all cases barring to an extent Hong Kong, a strong central state
created a long-term plan for development that saw it through from the early days of ISI all
the way to the establishment of advanced technological or financial industries. The state
was able to implement these plans through a range of policy tools, without considerable
domestic challenges and with the ability to adapt the details of the plans to the challenges
they encountered along the way. Rather than dwell in any particular phases of
development, the Tigers pushed forward, aggressively reinvesting in the infrastructure
needed to establish the next phase and protect it from the advantages of the international
market until it was ready to shoulder the burden of economic growth. This saw them
through, with some variation, from backwards islands, peninsulas, and losers in war, to
four of the most powerful economies in East Asia. But can this success be replicated
elsewhere?
The Missing Link: Leadership and Legitimacy
We may now have a model for economic development, but this does not not mean that we
can easily transplant it to other parts of the world. Other countries, notably the Soviet
Union, Maoist China and North Korea, have attempted to lead development from the state
with little success. Why was state-led development successful in the Tigers, but not
elsewhere? And can we replicate this in other parts of the world?
Advocates of market-led or interventionalist growth would say that we could not.
According to them the development of the Tigers, while ultimately successful, was highly
idiosyncratic to the East Asian region and cannot be exported elsewhere, the universal
alternative obviously being the liberalisation of markets (to the varying degrees required of
their models). The most common explanation of the Tiger s success is that it was in some
way due to their shared Confucian culture. Confucianism s emphasis on social hierarchy
and the nation-family, they would say, provides East Asians with the unique outlook
required to tolerate the submission of personal economic interest to the state s long-term
goals. Other parts of the world, lacking such an ingrained cultural disposition, would not
accept the states mandate and frustrate progress.
Beyond the obvious objection that there are still a number of Confucian states in the early
stages of development, Chang has considerable disdain for this argument. He describes
culture as having a Jekyll and Hyde nature, the positives and negatives being called on as
needed to justify an argument. The first example he gives here is an account of an
Australian businessman touring a Japanese factory in 1915 and concluding that the reason
for Japans then-backwardsness was due to the inherent cultural laziness of the Japanese
people. How times (and cultural stereotypes) have changed. Indeed, when East Asia was
still in the early stages of development the blame was placed as firmly on Confucianism as
its current success is today. Changs response to the culturalist argument is essentially that
within any culture or religion an observer can find sufficient characteristics to justify just
about any argument that they wish to make, which somewhat undermines the claim that
state-led development can only be successful in countries with a certain culture. No
culture, he concludes, is either unequivocally good or bad for economic development.
Everything depends on what people do with the raw material of their culture.
If the success of state-led development in East Asia cannot be attributed to their shared
culture, then what? I would suggest the missing link here is the legitimacy of these
countries leaders. All four Tigers had a strong central leadership able to effectively steer
the direction of the economy without significant internal challenges, an indication that all
enjoyed considerable legitimacy. Most governments today derive their legitimacy from
democratic elections when the Obama administration makes a decision, the decision is
made by the people and for the people. Older forms of government have derived their
legitimacy from the Divine Right of kings or from Hobbes s Leviathan, to name a few
examples. But from where did the leaders of the Tigers derive their legitimacy?
In all four cases, to varying degrees, the legitimacy (and continued survival) of the
leadership rested in some way on the continual economic success that they were able to
provide to the people. This meant that the leaders of all four of these countries had
considerable motivation to aggressively seek sustainable development, and the fact that
legitimacy was based on neither democracy (which can lead to instability and a lack of
long-term planning) or ideology (as in the Communist states, binding development to a
prescribed course with no room for adaption) allowed them to pursue this sustained
development with stability and flexibility, explaining their particular success.
The unity and legitimacy of Korean leadership was based on forced unity against the
ideological foe of the North.The division was based on ideological grounds, with leaders of
both North and South claiming to represent the ideology that was in the people s best
interests, and so the success of either leadership could best be gauged by their subjects by
how much better off they appeared to be when compared to their neighbours. Park knew
that he was relatively safe from uprising (though apparently not from assassination)
because the USA would not tolerate the fall of an anti-Communist regime, meaning that he
had considerable stability and the ability to make long-term plans, but he also knew that
the best means to maintain legitimacy was by proving ideological superiority over the
North by achieving greater economic gains.
Even today, much of Taiwans identity is based around its relationship with mainland
China, and a recent study concluded that while public identification with the mainland is
less clamourous than it was a decade ago, continuous GMD leadership until the 2000
elections meant that the leadership was always committed to their One China policy. This
rivalry with the Mainland, shared by both leadership and wider society, provided the
legitimisation for continuous GMD rule and again gave a strong economic focus to the
regime: they needed a strong economy both to prove superiority over the PRC but more
importantly to support the military forces that they needed to pose a challenge to the
mainland. This manifested most obviously in the continued nationalisation of the steel,
petrochemical, electronics and vehicle manufacturing industries, as all have an obvious
military application. Taiwanese leadership needed these industries in particular to have a
strong foundation in order to support their claims, both necessitating development and
removing the potential obstacles of democractic instability and ideological inflexibility.
The relationship between the economic development of Singapore and Hong Kong and the
interests of their respective leaderships is an even more pressing issue of survival: given
their tiny size, they simply didnt have the agricultural basis to survive as independent
countries. If they had not industrialised and maintained a position of economic necessity
within the region (as trading ports and later as financial centres) then they would not have
been able to feed their population. The legitimacy of the leadership here is based simply on
continued economic survival of the state, partly mitigated in Hong Kong s case by its colony
status. The legitimacy of its leadership was also tied to its status as a Crown property and it
might ultimately have relied on Britain to support it should it have failed to develop
successfully this would account for it being the most laissez-faire of the Tigers. Singapore,
sandwiched between its economic rivals of Malaysia and China, had no such fallback and
the leaderships continued rule rested solely on their ability to deliver the economic goods.
In the cases of all four Tigers we see a clear trend in the leadership and the location of its
legitimacy to varying degrees the position of the leadership is sustained and justified by
the economic development that they were able to deliver. Because they did not rest their
legitimacy upon democracy or ideology, leadership not only had the motivation to
aggressively pursue development, it had the ability to do so with stability of government
and flexibility of approach. The Tiger approach to development is perhaps best
characterised then as success due to coherent and flexible policies, effective
implementation by the state and political capacity to insulate economic planning from
competing interests.
Putting It Together: Replicating the Tigers Success
So how could we replicate the success of the Tigers in other developing states? The crucial
element is the leadership. If a state has a leadership that in some way derives its legitimacy
from economic success, rather than democratic elections or ideological correctness, this
will provide it both the motivation and the ability to effectively pursue the long-term and
aggressive development progression we saw in the Tigers, with clear transitions through
ISI, light industry, heavy industry, and finally into a fourth stage of high tech industry,
skilled labour and increased domestic consumption.
The biggest issue facing developing states is that in too many cases the leadership rests its
legitimacy not on the economic benefits that it can bring to its subjects but rather on the
military forces that it commands and with which it can suppress any dissent.A good
number of these states (and too many more besides) likely face a not-unrelated issue that
with their position secured by some form of legitimacy leadership is more concerned with
the benefits that its position can provide for itself than to the country at large they might
be stable government not bound to inflexible ideologies, but without the motivation of
legitimisation they are happy to focus their attention on patronage rather than enacting
development policies.
In order to rectify this situation, and to encourage development in states sorely in need of
it, some drastic measures must be taken. State builders need to generate in state leaders a
pressing urgency to pursue sustained economic development that will make the
government stable (non-democratic) flexible (not bound to ideology) and motivated to
actively pursue sustainable development progression. Alternate sources of legitimization,
such as military strength, need to be stripped by some means from leaders who show no
signs of interest in the long-term economic interests of their state in order to refocus their
attentions, while short-term revenue streams that will eventually dwindle need to be
limited extractive industries for instance should have their exports limited to fight the
resource curse and force consideration of alternate industries.
Here overzealous democratisation poses its own danger, quite apart from any criticism of
market liberalisation in developing states. Democracy at best provides a degree of
instability in leadership it is hard to make effective Five Year Plans (as in South Korea)
when the government could be radically different as little as three years into the future, let
alone long-term plans for development of key strategic industries as in Taiwan. At its
worst, democracy provides yet another legitimisation for leaderships primarily concerned
with its own benefit and not sufficiently motivated to aggressively push through
development plans. Democracy is certainly a good thing and should be a goal of state
building, but it is not the only good thing, and it may even provide an obstacle to
development better perhaps to wait until the government is more institutionalised and
society is more stable overall than to introduce it too soon.
Ultimately the pattern of economic development achieved by the Asian Tigers is replicable
elsewhere in the world, if the key issue of legitimisation and the role of the leadership in
development is addressed. However it may require some rethinking of the priorities of
statebuilding exercises, and other goals like the establishment of democracy may need to
be pushed back in order to maintain the stable, flexible, and economically-motivated
leadership that seems to be required for effective state-led development.
Conclusions
Of the three models of development we can identify in literature, it is the state-led model
that was successfully employed in the Asian Miracle of the Tigers. In contrast to the
Neoliberal approach of market liberalisation and faith in the rationality of individual actors,
this model describes a strong central state utilizing a range of policy tools to aggressively
pursue development even against the wishes of market actors. This sees development
follow a clear progression through ISI, light industry, heavy and chemical industries, and
then finally technological industry, with the export revenue of each stage being used to
fund the next and heavy protection from the international market until industries have
been sufficiently established.
Rather than being a product of particular cultural values, the success of this model in East
Asia can be attributed to the unique pressures placed on the leadership of these states to
pursue economic development lest stagnancy threaten their legitimacy. The reliance on
economic development for legitimacy rather than democratic elections or ideological
justification allowed the East Asian states to have both stability and flexibility in their
planning, effectively enacting long-term plans for reinvestment and development while still
adapting to the situation of the international economy and any new challenges that might
arise (such as Chinas development of light industry in competition to Singapore s). A state-
led economy has every chance of failing if they are not sufficiently stable, flexible and
motivated to pursue development, as other cases might suggest.
The Asian Tigers provide us with an interesting alternative to the developmental strategies
most commonly seen in state building exercises, with their emphasis on liberal values like
democracy and market-led growth. Replication of their successes may well be possible,
though it will require a dramatic rethinking of our approaches to development economics
and our conception of the relationship between a regimes legitimacy and security.
Lessons learnt from Asian tigers
The four Asian Tigers (Hongkong, Taiwan, Korea and Singapore) have been the fastest
growing countries in the world for the past three decades. These countries have been
hailed as models of development for other emerging economies. The main factors argued
for their growth are mainly high saving rates and investment rates, outward orientation,
factor productivity macro discipline, and other public policies. However there is continued
lack of consensus over these factors despite most of the researchers agreeing over the
promotion of a dynamic export sector and factor productivity as the major factors of
growth.
Common characteristics of Asian Tigers
 Focus on exports: Where as other developing countries use import substitution
strategies for economic development, the Asian tigers focused on export oriented industrial
development to richer countries. Domestic production was discouraged through
government policies such as high tariffs. also trading the surplus with the richer countries
 Human capital development they developed specialized skills for their personnel
in order to improve productivity
 They had an abundance of cheap labour
 Sustained rate of high growth rates (probably double digits) for decades
 Non democratic and relatively authoritarian political systems during the early years
 High tariffs on imports in the early days
 Undervalued currencies
 High saving rate
A case of Singapore in particular between 1966 and 1990, the economy grew at remarkable
8.5% per annum, 3 times faster than that of the US growth, per capita income grew at 6.6%
rate roughly doubling every decade. This achievement seems to be the kind of economic
miracle. The employed share of the population surged from 27% to 51%. The educational
standards of that workforce were dramatically upgraded. Also the country grew awesome
levels of physical capital, investment as share of output rose from 11% to more than 40%.
Factors that engineered the robust growth in Asian economies
Although consensus has not yet been reached by different scholars/researchers and policy
makers, the following are the mostly argued to be the factors behind the Asian tigers
growth;
Skilled labour force- In the 1960s these nations were poor and had abundance of cheap
labour. This excess labour was absorbed by labour intensive industries. Eg in 1965 Korea
industry sector only employed 9.4% as opposed to 21.6% in 1980 yet agriculture
employment fell from 58.6% to 34% over the same period. The excess labour was
transformed into productive workforce through the education reform and yet remained
competitively cheap. The focus was placed on education at all levels, all children attending
elementary education and compulsory high school education. Money was also spent on
improving college and university system.
Capital accumulation With respect to physical capital, the reasons can primarily be traced
to the high savings rates. Policies also probably played a significant role in increasing the
investment rate of the economy (High savings rates do not automatically translate into high
domestic investment rates but nevertheless, the high savings rates have led to high
domestic investment rates in Taiwan for example).As much as capital accumulation was
key to the growth of these countries, capital productivity (recall labor transferred to
industrial sector was accompanied with education reforms to add to its productivity) was
essential. Capital productivity was attained through adopt foreign knowledge and
technology. The technological catch up coupled with capital accumulation was significant to
the Asian tigers growth.
Note For most researchers they argue that factor productivity (labour should be enhanced
with education and capital enhanced with technological progress) is key for economic
growth.
Outward oriented strategies/policies- The more rapid growth can be growth can be
associated with much greater openness. Both exports and imports grew about twice as fast
in the Asian economies as they did in the latin America. Asian economies maintained much
high ratios of exports and imports to GDP. In hongkong and Singapore openness was
achieved by ending all restrictions on imports and giving free rein to export sector. In Japan
and Korea, and Taiwan, trade barriers were initially during the early 1970s however, the
tariffs were gradually reduced. Among the tactics used in different countries were:
exchange rate policies to favor exporters, export incentives, and selective tariff protection;
financial repression, slowing financial sector development and consumer lending to
provide cheap financing to industry for exports, and for key industries; a high level of
consultation between bureaucrats and business both individual companies and industry
groupings.
Slow growth rates of population- This played a great role in reducing family sizes
(dependency ratios), creation of an educated labour force, accumulation of household and
government savings, rise in wages and impressive growth of investments in manufacturing
technology. 1965 each of the Asian tigers established family planning programmes and as a
result fertility declined. Emphasis was also placed on civil education, increasing the rate of
entry of women into the workforce and education sector; leading to delayed marriages. By
1995, the average fertility level was an average of two children per family (couple).
Compare it with the Ugandas current fertility rate of 6.7 births per mother. Smaller
families produced 3 major demographic changes; slowed growth in the number of school-
age children, a lower ratio of dependants to the working age adults and a reduced rate of
labour force growth.
Ethnic homogeneity-Most of these Asian tigers had largely homogeneous ethnicity e.g.
98% of the Taiwans population is Han Chinese. Most researchers argue that ethnic
homogeneity is beneficial with respect to creating institutions that are conducive to
economic growth. Ethnic fragmentation leads to lower public expenditure on schooling,
worse financial institutions, and lower spending on infrastructure. Also lower transactions
are associated with ethnicity homogeneity.
Culture and Religious beliefs- Racial and religious harmony is regarded by the
government as a crucial part of Singapore's success and played a part in building a
Singaporean identity. Due to the many races and cultures in the country, there is no single
set of culturally acceptable behaviours. BUddism is the most widely practiced religion in
Singapore, with 33% of the resident population declaring themselves adherents at the most
recent census. The religious beliefs of Singapore, hard work, innovativeness coupled with
their culture of openness and harsh punishments for criminal offences led to a corruption
free economy.
Flying Geese Hypothesis-In this case, countries in East Asia aligned successively behind
the developed or advanced industrialized countries in their order of different stages of
growth in the wild geese flying pattern. In this pattern the leading goose pattern is Japan,
the second tier of countries are four tigers (Hongkong, Korea, Singapore, and Taiwan)
where as the third 3rd stage consisted of countries such as Indonesia, Thailand, and
Malaysia).China and Vietnam served as the rear guard in the formation. The flying geese
hypothesis predicts as labor cost surges in one economy, firms tend to move their
investment to the less developed neighboring countries or regions to take advantage of
lower wage rates. In the recent East Asian economic history, the phase of flying geese lasts
less than two decades. The New Industrializing Economies (South Korea, TheTaiwan,
Singapore and Hong Kong) absorbed most of the Japanese investment in the1960s and
1970s when the production cost in Japan rocketed up Eg in the early years Japan influenced
most of these countries like Taiwan after the 2 nd world war and these countries adopted the
Japanese economic model of economic development. E.g. China external trade development
council and the bureau of industrial development were based on the Japanese models.
Japan beyond being major trading company with developed countries, it became a major
trading company with the Asian tigers e.g. under the policy of agriculturalising Taiwan and
industrialization of Japan, the Japanese heavily invested in Taiwanese agriculture.
Knowledge driven economy-it was realized that there is need for research and
development if a country was to grow to economic maturity. The Asian Tiger governments
committed to improving research and development. E.g. in Malaysia the research activity
was/is determined by the needs of the industry including the needs of Small & medium
industries. Even in these countries, the skills focus was professional and managerial
occupational skills, research skills, professorship skill and technical skills. The industries
became knowledge driven industries and e.g. in Singapore gradually 2 out of 3 jobs were
for knowledged and skilled workers in manufacturing sector and 3 out of 4 of the export
services sector. Investment in R&D meant that evidence advised policy decision making in
these countries.
Effective and stringent public policies. This consisted of credible macro economic
policies that kept inflation low, interest rates low, fiscal policies that focused on raising
saving rates and investment rates, as well as policies that enhanced the development of
infrastructure. These factors consequently promoted private investment and growth. For
example, in Singapore despite the lack of natural resources and the absence of a large
domestic market, high growth rates and eventually development were realised. This
remarkable success has been attributed largely to sensible and effective policies and the
early attention paid to Singapores infrastructure
Politically, many of the tiger economies have a recent history of military rule.
However, a number of them have liberalized in recent years and Taiwan, Thailand, and
South Korea are now amongst the most democratic countries in Asia. This political
liberalization may make it more difficult for the tiger governments to resist demands
to expand the size of their higher education systems still further. This kind of political
system gives government the leverage to meet its development goals according to what it
considers priorities as opposed to a democratic system where issues of equity, gender,
ethics, etc are paramount.
Pegging performance to milestones
Much has been written about pegging remuneration to performance in the business world.
The unique feature of the Singapore system is that public service remuneration was pegged
to performance which was benchmarked against the milestones that had been
agreed upon by the agencies and the parent ministries. Atthe highest levels, political office
holders and senior public servants had their salaries pegged to economic performance and
the salaries of the top echelons of a group of key professional classes. At the lower levels,
compensation was pegged against performance against milestones.
Quality and standardization: Emphasis was placed on production of high quality
standardized goods that would compete at the global level. Experts on Standardisation and
quality assurance were brought in from Japan, US and UK.
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KAMPALA UNIVERSITY

TOPICS CONTENT: TIME

Why study political Economy

Topic. 4 The three Political economic systems; 9 hrs

Topic.9 Revision, discussion and test 3 hrs

RECOMMENDED TEXT BOOKS AND KEY READINGS:

Rose, N. L. (2001). "Regulation, Political Economy of," International Encyclopedia of the

TOPIC 1: SOME KEY DEFINITIONS OF POLITICAL ECONOMY

Thus politics and economics are inseparable.

TOPIC 2: MEANING OF POLITICS

Max Weber, a renowned Germany sociologist, politician also misrepresented politics

THE TRUE DEFINITION OF POLITICS

IMPORTANCE /LOGIC OF POLITICS

ii. Mobilization of scarce resources

iii. Allocate resources

iv. Bilateral or international bargaining (including trade)

v. Protecting citizens from external and internal aggressions

THE CONCERN OF POLITICAL ECONOMY

1. Plato (the republic350BC)

Physiological Needs (basic needs)

Belongingness and love needs

Fig:1 An interpretation of Maslows Hierarchy of Needs

E.g. Cuba, China, former Soviet Union

There are 2 types of instruments of fiscal policy:

Expansive (inflationary) fiscal policy - policy encouraging increase in aggregate

Restrictive (deflationary) fiscal policy - policy restricting the aggregate

There are two types of tools (instruments) of monetary policy:

Foreign trade policy

The Socialist Experiment in Tanzania

Nyerere's socialism had produced what some described as a bloated government

According to Nyerere, socialism in Tanzania was seen as an attempt by Tanzania to

2) By establishing Swahili as a National language, Nyerere succeeded in

3) In the same reign, Nyerere embanked on a 5years' industrialization programme in

Through chamachamapenduzi, Nyerere managed to establish and maintain an autocratic

 Ujaama as stated earlier is a Swahili term meaning 'brotherhood' or 'family hood.

Aims/Objectives of Ujaama/ Reason for the Introduction of Ujaama Policy In

1. Ujaama aimed at attaining self reliance in Tanzania. This would be achieved by

2. It aimed at increasing production in Tanzania. This would be achieved by

3. It aimed at promoting national unity. This would be achieved by putting people

4. It aimed at promoting solidarity and cooperation among the people so as to

5. It aimed at extending social services to rural areas. This was to be achieved by

6. It aimed at cultural transformation in Tanzania. This would be achieved by

7. It aimed at modernizing Tanzania. There was need to reform the economy

8. It was aimed at attaining national defense in the whole of Tanzania national

9. It was introduced to fight corruption and inefficiency. This would be achieved

10. It aimed at acceleration economic development in Tanzania to that Kenya and

13. It aimed at creating an egalitarian /classless society in Tanzania, ujaama was

16. It aimed at providing good leadership in Tanzania. Ujaama aimed at the

1. Land re-distribution the government embarked on its resettlement policy whereby

6. Enjoyment of social services. Efficient mobilization made it easier for government to

7. Attainment of national unity. Through a conscious policy of resettling people of

Weaknesses of the Ujaama Policy

9. The central government became dictatorial, other parties were banned.

 It attempted to explain why poorer countries have failed to develop, focussing on

 It aimed to provide a non-communist solution to poverty in the developing world

Why countries are underdeveloped: Cultural and economic barriers to development

Affective relationships Meritocracy people are more motivated to

Economic barriers to development

See the next sheet for details of modernization theory

Modernisation Theory 2: How countries should develop

Rostow suggested that development should be seen as an evolutionary process in which

Rostows five stage model of development

Stage 1  Traditional societies whose economies are dominated by subsistence farming.

1. Plato (the republic350BC)

Fig:1 An interpretation of Maslows Hierarchy of Needs

Affective relationships Meritocracy people are more motivated to

Rostows five stage model of development

Stage 1 Traditional societies whose economies are dominated by subsistence farming.

 Science and technology to improve agriculture

Variations on Rostows 5 stage model

 Hoselitz education is most important as it should speed up the introduction of

The Tigers Stripes: Case Studies in Successful State-led Development