Political Economic Development

(Class 2)
Why do we need development?
• Devastation of Europe in WWII
• Decolonization: brand new states
• Cold War Security Threat
• Human Misery difficulty
• International Economic Opportunity
step by step
Modernization Theory: Functionalism a
How can society become modern? What hindrances get in the way?
Traditional values that hold countries back include:
• Particularism “Keep it in the family” – domestic context.
• Collectivism “family and community interest are more most important than self-
interest” – state interest
• Patriarchy “respect the hierarchy, know your place”
• Ascribed Status/Fatalism “it’s written in the star”

What value define modern society?

• Universalism “everyone is judged by the same standards” – equality
• Individualism “individual self-interest is most important” – self-interest
• Meritocracy “the most qualified wins the job” – merit system, professional (skilled)
labor à professional make state modern
• Opportunity “we control our destiny, it is up to us to determine our future” – when we
have opportunities à modern society

7
(Walt Rostow’s Stage of Growth 1971)

Do all societies need to adopt “modern value” to become developed?

Economic Development and Democracy are correlated!!!

Lipset: Development à Democratization
Modernization Theory: 1959: Seymour Martin Lipset: Once societies start to develop reach climax
a

economically / expand economic output, a set of processes are put in motion that culminate in
democracy (Cheirub & Vreeland, p. 4)

Theoretical Assumptions:
• Incomes increase and the poor become able to have a wider perspective of time / more
tolerance of complex political arrangements that create change gradually à income +
more time (free time) / stable politics because people have work
• Middle class grows which plays a moderating role in politics - penalizes extremists
• Lifestyles between the rich and the other classes decrease and they become more open
to sharing power à equality of class
• Economic development brings many different interest organizations into play which
counter-balances the strength of the state. à balance + stability
o Source of new opinions, communicating new political ideas (oppositional ideas)
o Train men in the skills of politics
o Increase level of interest and participation in politics

What is democracy?
• Competitive elections
• Results are observed by every party
• Peaceful transition of power between parties/ groups/ back and forth (rules are
observed) – no coup
• Other factors that scholars include:
o Stability of political institutions
o limits on the executive
o strength of civil society

Why is it difficult for democracy to survive in poor countries, but likely for it to be sustained
in rich countries?
Przeworski (2005) and Benhabib and Przeworski (2006):
• Elections are in large part determining how income in a country is distributed à
election is the factor that determine income of the country.
• But losers of elections have a choice.
o 1) observe the result (get some share of the income) à can see the result
o 2) fight and try to become a dictator (if they win: they win the pot- decide how
income is distributed, if they lose: the lose everything)
• In a poor country the risk calculation favors fighting to win - so little to go around that if
you lose everything (in a failed power grab) or lose most (in a failed election) the
incentives to try to win are much higher à win is good, but lost, lost everything so
decided to be dictator.
• In a rich country, losers of an election are relatively well off (there’s enough to go
around) so the incentives to try to stay in power and risk losing everything are lower.
 • “In poor countries, the value of becoming a dictator is relatively high, and the cost of
fighting is relatively low.” (9)
• “In wealthy countries, the gain from getting all rather than only part of the income is
relatively small and the cost of fighting to become a dictator is relatively high.” (10)
• So while democracy is established in poor countries all the time, democratic reversals
are common (coups, etc) whereas democratic reversals are uncommon in wealthier
countries.
• Emphasizes that while the economic conditions and political incentives are different in
rich countries vs poor countries, people are not. (It is not that the “poor don’t get it or
are undeveloped.” Everyone is making rational choices based on their best interest and
specific circumstances.

Why are democratic results challenged in poor countries?

“In poor countries, the value of becoming a dictator is relatively high, and the cost of fighting is
relatively low. In wealthy countries, the gain from getting all rather than only part of the
income is relatively small and the cost of fighting to become a dictator is relatively high.” (9-10)

Other challenges to MT:

Endogenous ภายใน factors that seem to hinder democratization:
• immobile resources (Oil) (Stokes and Boix, 2003) à resources are not distributed.
• high income inequality (Stokes and Boix, 2003) à gap between poor and rich
• Logic: the threat of income redistribution is higher- more is at stake for them if they
democratize and the elites lose à ineffective redistributed ß exploitation
• Country-Specific Fixed Effects (Acemoglu, et. al 2007, 2008)
o quality of political institutions established at colonization = fixed norm –
colonization à political institutions
o Inhospitable environment (unfriendly) → repressive structure organized around
resource extraction (weak institutions) Ex. colonies in the Andes
o Hospitable Environment→ more participatory structure organized around
sustaining a local economy (strong institutions) Ex. NE United States

Exogenous factors that seem to stimulate democratization:

• International System! à UN
• Waves of democratization following WWII, End of Cold War
• Globalization
Where do we go from here?
• Modernization Theory observes a correlation between economic development and
democratization, but causation is difficult to substantiate.
o Democracy (economic enhancement) à modernization
• Modernization Theory, while thought of as old school within the academy, is dominant
in public understandings of development, democracy, and human progress.

What is the impact of modernization theory on the real world?

Summarize
• Economic development à effective expansion in economy + surplus labor
• Democratic works when there is a high economic development
• Economic enhancement à widen middle class à no gap à democratization
• democratic countries are more likely to be wealthy than non-democratic or
authoritarian countries
• democracy more modernized, particularly in terms of economic development, because
economic development sustains and survives democracy in countries with a higher
income
• my opinion, economic growth can occur in both democratic and non-democratic
nations, as development can occur in all types of nations
o the increase in educational development, which is crucial for citizens' access to
knowledge, since many non-democratic nations have a quality education system
(that can make economic growth) compared to democratic countries
o certain features of economic development that are possible in democratic
nations. For instance, democratic nations are more open to free trade
agreements with nations like the United States, allowing foreign investment to
enhance their economic growth

(Class3)
Development as a series of Problems
• Political Instability
o weak institutions, unable to protect property rights and distribute public goods ß
high gap
• Threat of Communism
o socialist leaders keep getting elected in poor states
• Low Economic Output
o not enough cash to grow the economy à exploitation
• Corruption
o Government officials using policy for their own self-interest
• Inefficient Industrialization
o Constantly playing catch up to the West to produce goods suitable for export -
 • Inflation/ Stagflation
o prices are rising at the same time as unemployment (1973 oil crisis)

Development Economics
Ricardo’s Theory of Comparative Advantage: (1817)
• Even if a country can produce goods A and B, it should produce only the goods it is most
efficient at producing (A) and import the other goods (B) à what you professional and
good at producing.
• The theory is a follow up to Adam Smith’s theory of absolute advantage à for more
benefits.
• the theory of comparative advantage explains the existence of international trade. à
trading
• It seems counterintuitive - why wouldn’t a country just produce all of its own goods if it
has the capacity?
o specialization on goods you have a comparative advantage in producing allows
you to focus, innovate, and improve
o when countries are producing to their comparative advantage everyone gets the
best stuff

Raul Prebisch - Argentinian Economist

Critique of how Ricardo’s Theory of Comparative Advantage works in the context of
Development
• Developed (Core) countries are trading with
developing (Periphery) countries
• “Periphery” countries are not developing or
industrializing because they’re exporting
agricultural goods and importing technology
from “core” countries. They are at a structural
disadvantage.
• Solution: Import Substitution Industrialization
= dependency theory

• The United States, Canada, most of Western Europe, Japan, Australia and New Zealand are
examples of present core countries that have the most power in the world economic system.
Core countries tend to have both strong state machinery and a developed national culture.
o Describes dominant capitalist countries which exploit the peripheral countries for labor
and raw materials.
• Semi-peripheral countries contribute to the manufacturing and exportation of a variety of
goods. They are marked by above average land mass, as exemplified by Argentina, China, India,
Brazil, Mexico, Indonesia, and Iran.
o whose state of economic development is between the most industrialized nations
(known as core countries) and peripheral/periphery countries, which are less developed
and have minimal impact upon the global economy.
 o Countries that share characteristics of both core and periphery countries Countries that
share characteristics of both core and periphery countries
• Periphery countries are those that exist on the outer edges of global trade. There could be many
reasons for a country to be considered peripheral, such as a dysfunctional or inefficient
government.
o Peripheral countries are dependent on core countries for capital and have
underdeveloped industry.

https://socialsci.libretexts.org/Bookshelves/Sociology/Introduction_to_Sociology/Book%3A_Sociology_(
Boundless)/08%3A_Global_Stratification_and_Inequality/8.06%3A_Sociological_Theories_and_Global_I
nequality/8.6I%3A_World-Systems_Theory

Import Substitution Industrialization (ISI)

Problem: Developing countries aren’t advancing their industry because they import better
industrial goods from the developed countries à developing rely on import / did not produce.
Solution: Governments protect domestic industry by not importing industrial goods, so that
domestic demand for domestic-produced goods increases à stop import to increase domestic demand

for example, Popular in Latin America and Sub-saharan Africa

• included tariffs (make imports expensive!),
• nationalization of industry (direct government ownership of parts of the economy) in the name
of protecting infant industry and growing the economy à state-own business
• Acknowledges the structural disadvantage within classical economics for developing countries.

Developmental State
1950s Development Economics:
• The characteristics of economics are different for the developing world than the characteristics
of the developed world. In order to develop, states need to apply a different strategy. à
continue stability / periphery continue increase GDP.
• Structuralist approach
• In general, favored state planning in the economy, using foreign resources to invest in
industrialization (loans or aid), focus on exports, industrialization of rural people through
producing basic consumer goods, state development projects/ or projects approved by the WB =
how to develop economy in developing country

For Neoliberalism, what is the source of the development problems?

“The top 9 most terrifying words in the English Language are: I'm from the government, and I'm
here to help” – Ronald Reagan à not directly develop / some are being exploit by core country
/ government say we will develop à development is not really good.

Context:
• Cold War: Fear of Communism
• 1973 Oil Crisis and Global Recession

Core Belief:
• Governments are the least efficient way to address human needs.
 • help periphery country.
Impact on consensus has on developing world?
• Indirect exploit
Structural Adjustment Programs & Austerity
*2
• Reduce government spending on social services
• Maintain low wages to ensure cheap labour markets
• Privatize state enterprises
• Devalue local currency to facilitate foreign investment
• Focus on economic production on exports

Summary
• Economic enhancement (modernization) à Washington Consensus
• Underdeveloped ß did not cooperate, not being democracy.
• Economic growth à economic reform
• Economic reform and market reform have led to improvements in public good. For
example, the Washington Consensus is a market-liberalizing policy that makes economic
reform after international crises. This policy is supported by international institutions
such as the World Bank, and it makes economic reform by implementing financial
policy, establishing tax systems, liberalizing trade, free trade, and so on.
• Economic reform is important
• But it can lead to financial crisis if it is ineffective.
• How can we tell what policies are effective following economic reform? (such as criteria)
• Is a liberalized market the greatest method to achieve economic growth success?
 class socialism

↓ competitive
social order - nature
rest

indow worm see race)

&

Mare 180 de Artificial - self-interest -social (ocapitalism

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(Class 5)
Key Concepts: Historical Materialism à material + economic drive force to society à mode of
production / materialism make class because it lead to mode of production (capitalist + labor)

Capitalism prone to crisis→ crisis leads to shift in who controls the means of production
via conflict→ history is propelled forward through this process

Key Concepts
• Dialectical Materialism
• Ideology
• Alienation
• Imperialism
• Surplus Value of Labor à for
benefits
Key Concepts: Ideology
shoring
• Material construct super structure

= -> social relation

rogeadwriting
Marxism link to development?
• Marxism à capitalism à more development à run ideology.
• Does this understanding of industrialization in the UK and the USA change how you see
international development?
o Marxism -> critized (dicov), division of labor capitalist socialist, slane, so on)
§ Materialismtecs
à mode of production à hierarchy à gap / capitalism want
drive force to some
to run economic to capi, alobal
· capitalism ->
conflict of interst - capit slave
Social relation ->
orred
by middle class conocior cheap
->

class)
Lo Socialistof n,100:1500 class doming me
·
utopianism ->
disagree
mid competitive
own to a self-interest laim, one social class

Summary
• Karl Marx's perspective on capitalism and development à development in terms of
economic growth or Marx's use of labor accumulation indicates that there is a
class struggle between rich and poor, particularly in (labor) exploitation.
• Cheapened things, such as cheap labor, cheap nature, and so on, are used in capitalist
production in an effort to maximize profits.
o the idea that capitalists take advantage of workers by giving them a large number
of tasks to complete each day without paying them more, which called cheap
labor or cheap work.
o the concept of cheap nature, in which capitalists attempt to exploit natural
resources in developing countries, where access is free, and no money is
required to fish or cut to make a product.
• capitalist strategy has a direct impact on the third world or developing countries.
(class 6)

“Development was – and continues to be for the most part – a top down, ethnocentric and
technocratic approach, which treated cultures as abstract concepts, statistical figures to be
moved up and down in the charts of ‘progress.’ Development was conceived not as a cultural
process (culture was a residual variable, to disappear with the advance of modernization) but
instead as a system of more or less universally applicable technical interventions intended to
deliver some ‘badly needed goods’ to a target population. It comes as no surprise that
development became a force so destructive to Third World cultures, ironically in the name of
people’s interests.”

What do you think of Escobar’s claim that Development has been a force of destruction, rather
than progress in the “developing” world?
• 1st world set the rule to stimulate economic in 3rd world countries
* • Post-development – underdeveloped need to follow tactics (development discourses),
which benefits one country at the same time exploit 3rd

Post-Development à how to get recover economic from war, so winning country post the
post-development to help enhance economic
Development as a discourse
• Diagnostic of Problems / Prescribed Solutions
• Universal à many people follow
• Justified Intervention à in 3rd world
• Destructive à it’s destroy third world not helping

For example – 3rd have to follow

The Green Revolution
• Green Revolution farming practices developed in the US were introduced in Thailand in
the 1960s.
• Industrial farming replaced traditional farming practices in Thailand.
• Green Revolution promised higher efficiency and yields with the use of pesticides,
herbicides, and genetically engineered seeds.
• With industrial farming, farmers could earn a profit by selling their crops to the market.
• Thailand became one of the largest rice exporters and used the money from agricultural
exports to invest in technologically advanced industries.
• The transformation of Thailand's farming practices occurred alongside the development
boom after World War II.
• New farming practices required farmers to purchase agricultural inputs from large
agribusinesses like Charoen Pokphand Group (CP).
• The Thai government set up the Bank of Agriculture and Agricultural Cooperatives
(BAAC) to lend farmers money to purchase the inputs.
 • The Green Revolution did not fulfill its promises for many farmers, and switching to
conventional farming left them poorer, sicker, and with less control over their
livelihood.
• In Surin province, the Alternative Agriculture Network (AAN), an NGO, was formed to
support farmers transitioning to organic farming and educate others about the costs of
conventional farming and how to transition.
• AAN claims that spraying chemicals on fields is hazardous to farmers' health, reduces
soil quality, and often leaves them in debt.
• Organic farming allows farmers to obtain higher prices for their agricultural products,
protect their health, and have more control over their livelihood, rather than depending
on fluctuating conventional rice prices.

• The problems of the third world were constructed to justify intervention following
colonization
• The “poor” were made poor through development intervention
• There is no need to develop as the West has prescribed- people are better off without
modernization**

How might development theory or development strategies look different if they integrated
Escobar’s critique? What would need to change and how would these changes affect people on
the ground?
 • Exploitation
• Follow to develop but not really develop

Do you agree that “Development” as we’ve seen has created more harm than good? Why or
why not?
• Inter is good
• But internal has to follow (foreign) capitalist

Summary
• capitalism plays a significant role in development, particularly in economic development
by maximizing profits, which necessitates industrialization and technological
advancement
• Capital needs to invest and utilise natural resources extensively in order to develop, and
the developing country is an example of how capitalists directly benefit them through
this process
• there are still problems in poor countries, such as labor exploitation, where workers are
not paid adequately for their daily tasks
• we need an international organization or international institution to address the issues.
For example, having a criterion by establishing a rule for businessmen to follow
• model of 1st world country à make others follow but still be labor / got some benefits

(class 4 – independence theory)

Dependency Theory: A Response to Modernization Theory
MT: All countries must follow the same path to development.
DT: Developing countries cannot reach development following the same path as rich countries.

MT: The hindrances to development are internal to developing countries. à modernization:

some countries are dictatorship / poor
DT: The hindrances to development are the embedded in the hierarchy and inequality within
global capitalism (core and periphery) i.e. in the system à develop only core country

Development Economics
Raul Prebisch - Argentinian Economist
Critique of how Ricardo’s Theory of Comparative Advantage works in the context of
development
• Developed (Core) countries are trading with developing (Periphery) countries
• “Periphery” countries are not developing or industrializing because they’re exporting
agricultural goods and importing technology from “core” countries. They are at a
structural disadvantage.
Gunder Frank: satellite states experience their greatest economic development outcomes when
their ties to the metropole are the weakest
Dependency Theory: Basic Claims
• European and US development was predicated on the underdevelopment of the non-
European world (colonization + slave trade) à exploit.
• Non-European countries entered the global economy to meet the demands of the
“center”
• The non-European world developed to have a small ruling elite that collaborated with
the economic elite of the center and a large dependent peasant class
• First version of dependency school stated that the third world developed to offset crises
in the first world, the elite was parasitic in the working poor and the only way to have
meaningful development is through socialism, like China and Cuba à first world use
capitalism, but third world use socialism (?)
• Second version was out of LA, Andre Gunder Frank-capitalist development
underdeveloped the 3rd world, that the corrupt institutions were a result from the
introduction of capitalism not the traditional societies. à capitalism is hard to develop
due to corruption so socialism (?)

Do you agree with Dependency Theory’s fundamental challenge to Modernization Theory?

• Challenge à still have problems.

Dependency Theory in Latin America

Enclave Economies (land lock country): foreign capital dominates industrial development-
industrial and urban economies are largely dependent on the core - distorted development
(Venezuela, Chile, Mexico, Peru) = periphery
National Economies: local dominant class maintained control of the local productive processes
– rely on international trade to fully develop (investment/ start up capital is internal, but still
need to see on the international market) but local bourgeoisie is controlled access to the
market (Brazil, Argentina, Colombia) à core invest in periphery / internal of third world

Gunder Frank (OG dependency theorist) focused mainly on external factors and the roots of
underdevelopment in colonization (Capitalism and Underdevelopment of Latin America- 1967)
à this theory, third world won’t be develop because of first world/capital colonization

DT influenced the adoption of ISI in Latin America in the 1950s-60s

ISI à protect domestic product by stop import à DT use this as a solution

Dependency Theory in East Asia à semi

Some say the success of S Korea, Taiwan, Singapore, and HK challenges DT (Growth is possible!)
à 3rd socialism, 2nd some intervention for development
• Pursued an export led approach - vigorous gov’t intervention in labor-intensive
industries such as manufacturing for exports behind successful grown
• Financial deregulation is the cause of the Asian Financial Crisis (1997)
o the process of removing government rules controlling the way that banks and
other financial organizations operate à no government help

Biggest contention is the relationship between the state and the economy and high growth. -
inconsistent with neoclassical tenets

In East Asia, strong states were in place before MNCs (apple, adidas, so on) came into the
economy (not so in LA)

Easier for East Asia to access emerging markets in the region than LA and pursue export
oriented industrialization.
• EOI
• Intervention

Dependency Theory: Different in Different Regions

• In Latin America, NICs (Newly Industrialized Counties or middle income country) were
dependent on investment from transnational corporations and banks. à MNCs
• Security: In LA, the US wanted to stamp out communism and saw this problem as
coming from within countries→ built up militaries and extended high-interest loans to
governments willing to cooperate with security interests in the region
 • International Trade: In EA, US aid was directed at developing the private sector,
infrastructure development and education→ laying the foundations for a free market
economy.
• South Korea and Taiwan both pursued ISI (unsuccessfully) before shifting to an export
oriented economy.

Dependency Theory: What about China?

• Developing Country/ Global Super Power
• Dependency with LA? Source of resources and market for LA exports
• China’s lack of industrialization was an aberration in their long history of strength
• State-supported market growth
• Challenge to US Hegemony: Another option for developing countries. Choose your own
gov’t! à communist can develop economic

MT à not mentioned communist (?)

DT
• An example of the dependency theory is that during the years of 1650 to 1900 European
nations such as Britain and France took over or colonialized other nations. They used
their superior military technology and naval strength at the time to do this.
• have encouraged developing countries to depend upon the support of more advanced
nations.
• For example, recently the African country of Zimbabwe had very little rain.Crops failed
and farm animals died. As a result, the nation had to buy 90 percent of its food from
other countries.
• It states that global inequality is primarily caused by core nations (or high-income
nations) exploiting semi-peripheral and peripheral nations (or middle-income and low-
income nations), which creates a cycle of dependence (Hendricks 2010).

Summary
• Even when global development is ongoing, why are the poor still poor or becoming
poorer while the rich become richer by exploiting underdeveloped raw materials?
• result of globalization, capitalists attempt to exploit this chance to cheapen things that
have caused suffering in the third world, such as low wages and overtime work.
• the dependency theory investigates the causes of underdevelopment in Latin America.
• dependency theory differs from modernization theory in that it is used to evaluate the
situation in specific topics while also looking at the roots of history.
• Dependency analyze problem in LA and it shows that underdevelopment from
exploitation
• Rich natural resources and material that 1st demand and took benefits
o For example, in Venezuela and in Africa, rich oil ß 1st exploit by invest in 3rd
market à many poor
• EOI is effective than ISI
Exam
• Read the article on the economy in Egypt. How would:
• a modernization theorist respond?
• a dependency theorist respond?
• a Marxist respond?
• a post-development theorist respond?

Identifications: write 4-5 sentences on key terms and how they relate to international
development).