Political Economy and Development: Chapter 4Week 5

Introduction• Development• What is it and what isn’t it?

• Economic Development• Short-comings of an economic emphasis

• Other Measures of Development

• Explanations as to why development may occur• The economic approach• Alternative approaches

What is Development?• Thoughts?

• Definition: A process by which a society changes or advances, often measured in terms of quality of life, standard of living, access to freedoms and opportunities, or other indicators.

What is and What isn’t Development

• Development in Saudi Arabia• Vast economic wealth, concentrated primarily in the

hands of a few

• Development in China• Vast economic growth, critical environmental decline

• Measuring economic development• The difference between GNI and GDP• Huge growth numbers as are seen in a place like China

are typical of poorer states• Advanced economies grow much more slowly

Economic Development as a Comparative Tool

• Total wealth of a country isn’t, in fact, all that informative

• Rather, if one divides GDP by the population, one can better understand the wealth of the nation (…sort of)

• Purchasing Power Parity• Equalizes what a dollar can buy in each country of the

world• Goods and services may be (comparatively) more

affordable in poorer states

Why Standard Understanding of Economic Development is Insufficient

• The idea of economic development is, in fact, relatively new• Only emerged after World War 2 as a concept• Previously, there wasn’t really an understanding of linear

development, only of relative power

• Also, a relatively short-lived measure of development, at least in academia

• Why might GDP be a poor measure?• Even with PPP and per person GDP, there is no clear

understanding of distribution of wealth

Understanding poverty and inequality

• Poverty vs Absolute Poverty• Relative experiences• Subjective vs absolute poverty line

• Inequality: differential distribution of power, status, wealth and things

• Gini Coefficient

More Complexity in Economic Development

• Employment, Unemployment and Underemployment• Jobs/population• Often self-reported• Cannot account for people working fewer hours than they

want, or making wages less than they need• Cannot account for people whose skills are not being used• Cannot account for people in the unofficial economy

• Inflation, hyperinflation and deflation

Social Development• Basic (but incomplete) measures of social

development• Life expectancy• Infant mortality• Literacy

• HDI is a composite index, one that combines a variety of measures to construct a broader understanding of social development• Correlated with economic and political development• Inequality actually tends to rise with economic

development• Unequal outcomes

Gender and Ethnic Inequality

• Traditional measures of development have not accounted for unequal outcomes between sexes or between ethnicities

• Most effective means towards development, should seek equal outcomes with women• Economic and education

• Observable differences between groups can lead to violence

Less Obvious Measures of Development

• Development, as we construe it, is often about being better off, but must it?

• Personal satisfaction and utility

• GNH• Bhutan first, but this is becoming a more important

measure

Culture and the Environment• Protection of indigenous cultures• Dominance of western entertainment and other cultural

symbols• Particular issue related to globalization• Counter movements in China, India, South Africa and

France (among many others)

• Loss of culture can be particularly threatening from an identity perspective

• Balancing environmental concerns with other kinds of development• Free rider problem

What Causes Development?• Despite basic concerns about focusing on

economic development, there are benefits to this approach

• From a political economy perspective, an economic focus is fundamental

• Why do economies succeed over time?• Theories:• The institutional approach• The cultural approach• The global approach

Institutions and Economic Development

• What is an institution?• Regular or patterned activity that shapes the behaviour of

individuals and groups, including formal organizations like the state or political parties, as well as more informal institutions such as norms and values

• Primary question of political economy and economic development:

• What’s better for economic growth, private markets or government intervention?

Neo-Liberalism and a Market-Based Economy

• What is neo-liberalism?• Freedom in the market• Based on Wealth of Nations, the invisible hand and Adam Smith

• Well-being determined by wealth, so economy should be geared to maximize this

• The greater the economic freedom, within and outside of the state, the better off everyone is

• Governments need to be hands-off• Privatization

More Neo-Liberalism• Neo-liberalism really rose into prominence in the

1970s and dominated much of the policy sphere by the 1980s

• The Washington Consensus• Influence IMF and World Bank to push for extreme

liberalization• Pushed for privatization and liberalism first in Africa, then

Latin America and finally post-soviet Eastern Europe

• Government just gets in the, self-interested decision makers• Intervention makes everyone worse off

An Alternative Approach: State-Led Development

• Government should play a central role in economic planning and development• State-owned enterprises can be good and lead to

improved economic development

• Government policies can help build business• Human capital through education• Coordinate economic actors• Promote industrialization• Protect local industry from global competition• Use monetary policy to increase competitiveness

State-Led Development in Practice

• Primary method of growth post-World War 2• Rebuilt Europe• Led to the emergence of Japan, South Korea and Taiwan

as major economic powers• Despite the “openness” of some of China’s economy, this

concept can also be applied there

• Does not assume that state involvement is necessarily good• Examples of state-led development is mixed, so good

governance and an effective state appear to be necessary components for a positive role

• Balance and public goods

Other Theories in Brief

• Rational Institutionalism

• Historical institutionalism

• Path dependency

The Culturalist Approach• Culturalists focus on features of the society, and

how norms, customs and values impact development.

• Civil society: area of social life, separate from the state, in which discussion of politics and improvement of society can happen• de Tocqueville and the American identity• Civil society builds and requires trust• Builds social capital• Advantages that emerge due to existing relationships

The Role of Religion in Development

• Through much of the 20th century, there has been attempts to relate religion to economic development• The Protestant Ethic)

• While certainly, there are aspects of certain religions that, if followed strictly, could limit development to some degree (for instance, limits on money lending and borrowing), most of these ideas have been undermined by recent evidence

• Can say that religion acts as an intervening variable (impacting the values and norms of a society), there is little evidence of direct causation between religion and economic growth

The Domestic and International Space (or the Structuralist Approach)

• Structuralism is a derives from Marxism• It is the underlying structures of the economy that impact

growth more than values. For instance, the class system at play in the state or the types of economic production within or outside of the state

• Powerful in society corrupt economic systems and twist them to their own advantage • State is simply a mechanism designed to ensure that the

powerful and wealthy remain powerful and wealthy

An International Marxist Approach

• Inequality is caused by and perpetuated by global capitalism

• Powerful states have designed economic systems in such a way as they get unequal benefits• Poorer states provide cheap labour and goods that allow the rich to

continue to accumulate wealth• Poorer states may have “collaborators” who profit locally, working

with international capitalists and providing them with local access

• Dependency theory• Free trade will lead to permanent inequality• Government intervention is only solution• Zero-sum game

Considerations of Geography• International trade is much easier with sea

borders• Otherwise heavy dependence on good relationships with

their neighbours• Also harder to attack via oceans

• This suggests a natural advantage to Canada and the US (and to a lesser extent, the UK)

• Advantage in cooler climates?• Luck of the draw?