Development Theory in the Postwar Period

Chapter 2 of “Understanding Development: Theory and Practice in the Third World”

(John Rapley, 2007)
Syadza Salsabyla Tamam
(23/512474/PTK/15045)
Development Theory Assignment 1
MPWK UGM 2023
Background - History Timeline
• In the early summer of 1944, World War II was about to
come to an end.
• The Bretton Woods Conference was held in New Hampshire,
US, to lead the movement of postwar capitalist economy by
establishing a favorable international environment for
economic growth.
• International Monetary Fund (IMF) and International Bank
for Reconstruction and Development (now World Bank) https://www.npg.org.uk/
collections/search/portrait/
were established. mw179585/John-Maynard-Keynes-
Baron-Keynes
John Maynard Keynes –
• To follow up, in 1947, General Agreement on Tariffs and English economist, best
Trade (GATT) was created. known for his economic
theories – gave important
• The US dollar became the universal currency as medium of contribution in the
exchange Conference
Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
Classical Political Economy
(with Classical & Neoclassical Liberalism)

Free Market + Individual Liberty = Economic Success

Citizen’s Right Conception

YES NO
Liberties from coercion Rights TO something, e.g.
 To practice religion - Employment
 To trade - Housing
 To do economic enterprise - Education

Inequality
“… that it is not the state's task to redistrib­ute resources to equalize society”
Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
 Classical Political Keynes’ Approach
Economy
Economic
Economic depression cause Government spending
depression cause unemployment on building public
unemployment goods

High More demand for goods

unemployment and services
Labor prices drop persist indefinitely

Factories need to
increase output

Employers hire more

workers
“ Keynes’ innovation was
call on governments to
Factories take on more
workers
The Impact of borrow, if necessary, to
Keynes in the More workers pump money into the
The downturn cured
increase demand for economy
First World goods and services Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
 Ex-colony
of imperial
powers

Most
Low per population
capita engaged in
incomes agriculture
The Third
World
Exports
come
The High
mainly from
primary
Emergence of population sector *The First World =
growth
the Third rates Advanced Capitalist
*The Second World =
World Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
Soviet Communist

In the early postwar period, most of the
world had shaken off the bond of
colonialism
Most of the new world countries were poor
with 2 riding priorities: Development &
Independence
Industry was seen as the key to modernity
and wealth
The ability to produce finished goods and
not count on the imports of the late
colonizers would develop the economy
Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
Case Study:
Import Substitution
• A strategy in Latin America which
the governments created their
industrial bases to trade among
themselves.
• The governments also encouraged
private firms to produce imported
goods substitution.
• They successfully ended importing
goods and shelter themselves in
global economy.
• E.g. Chile and Mexico
Development Theory After Keynes
• Prebisch-Singer Thesis : to maintain levels of imports from the first world, third-world
countries would have to export more primary commodities
 “Declining terms of trade” Syndrome  need a “big push” stimulation to break free
• Structuralism : about structural obstacles blocking third world’s path to development
Modernization Theory Dependency Theory
Identify the first world’s condition that had That imperialism had drained the colonies
given rise to the development, and specify resources and keep them poor, by striking
where and why these were lacking in the alliances with the dependent bourgeoisies
third world which dominate the capital of the countries
“Keeping its country backward thus preserved
Underdevelopment was an initial state
the wealth and privileged position of a third-
“However the West could help the world ruling class.
development in the third world” Dependency of exporting primary goods
The First World could guide the Third Industrialism in the third world countries come
World’s development through aid and not from themselves but emerge from the first
investment world.
Statism in the Third World
• State intervention took different forms in Import Substitution Industrialization
the first world and the third world (ISI)
 First World : welfare legislation, public
programs, nationalization of private A policy that advocates replacing
industries foreign import goods with domestic
 Third World : emerging industries and production
creating public ones which had failed imposes on Foreign
Nation Restriction
by the private sector goods
• 3 Options for development planners:
Local Manufacturers
flourish
Foreign State
Autarky
companies Intervention
by imposing trade barriers—
tariffs and import quotas

Rapley, John (2007) “Understanding Development: Theory and Practice in the Third World”
Conclusion
Import Substitution Industrialization became one of the 20th century’s
bold and most widespread economic experiments
Even though it may have some holes, this strategy promised many gains
and could help the Third World to develop and bloom
Thank you