In this paper we present a report on
the papers and proceedings of the Conference on "The Need to Re Think
Development Economics, convened by Thandike Mkandawire, Director of the
United Nations Research Institute on Social Development (UNRISD), and
hosted by the Ford Foundation in Cape Town, September 7-8 2001. The conference
brought together some thirty development economists - from South and North
- to exchange ideas on how to counter the hegemony of mainstream economics
orthodoxy by heterodox developmental paradigms and policies, based on
recent literature and, above all, on experience. All participants were
required to submit brief "ideas" papers Additionally several
communications were received by economists who could not be present. Subsequently,
an initiative to establish an international network of development economic
research, co-ordinated from the economics department of JNU, New Delhi
was launched. The conference confirmed our assessment of the usefulness
of the "old" development economics in the search for pro-active
policies of development. In the context of "globalization",
however, it is evident that "open-ness" must be built into models
of large, as well as small economies. We conclude that the development
economics of the 1950s and 1960s, which drew on the teachings of the great
economists, are an essential element of programmes to train a new generation
of development economists, and offer some suggestions for collective research
programmes, and networking within and outside the Caribbean region.
Equitable Economic and Social Transformation
In the 1980s, development economics was hounded out of economics departments,
international financial institutions and journals, in an ideological counter
revolution which proclaimed there is one and only one true economics and
it is valid in all times and places. Thatcher's TINA ("There is No
Alternative"). The elimination of development economics was given
official sanction by the US government.
In the 1990s, there were signs of revival of interest in development economics.
The Washington Consensus", based on deflationary monetarist macroeconomics,
and micro economics, predicated on unrealistic assumptions of competitive
markets, perfect knowledge and no transactions costs, came under attack
even within the BWIs. The Asian crisis and the failure of SAPs gave rise
to proposals for "second generation" reforms" to "
reinvigorate state capability" The World Bank proposed. Comprehensive
development frameworks" reminiscent of the ‘development planning"
associated with the old development economics.
Revisionist accounts of interventionist ISI policies Latin America and
Africa in the 1960s and 1970s recalled growth rates which have not been
equalled since, and great progress in health and education Revisionist
accounts of the Asian "miracle economies" revealed a developmental
state which appeared to be following the prescriptions of the old development
economics, with emphasis on high domestic savings, high investment and
.an active role of the state to manage coordination problems, by over
all development programming. After 20 years of structural adjustment to
external and domestic financial imbalances, structural transformation"
of the real economy is returning to the development discourse
As noted by Joe Stiglitz in a communication to the conference, "there
is a growing recognition that the liberalization agendas pushed by the
IMF were counterproductive, there is no well developed theory upon which
policy makers wishing to have a nuanced, gradual transition, can base
their prescriptions". Although the world is too complex for a single
overarching model to replace the competitive equilibrium model, there
are a set of tools and perspectives, derived from models of imperfect
information and incomplete markets which can be used to make more appropriate
macroeconomic models. "The question is how can we institutionally
facilitate the replacement of the old paradigm with new perspectives?
Without stronger intellectual foundations, one can point out the weaknesses
in the neoliberal paradigm, but cannot offer an alternative that is not
equally subject to criticism" This was the central problem addressed
by the conference: " The main objective of this initiative is to
contribute to the revival of development economics, not as a deviant branch
of mainstream economics, but as a subject whose role is to acquire understanding
of the vital problems that developing countries typically face. There
is also a need to produce a new generation of development economists."(
Mkandawire)
How to reconstruct "development economics" to addressed poverty
in an international environment which privileges finance over the "real"
economy and has de-constructed the capacity of states to institute equitable
policies of economic development? How to re-construct the developmental
state as an effective and democratic institution? How to challenge a hegemonic
ideology of methodological individualism whose influence reaches beyond
mainstream economics to political science and sociology? Is it possible
to halt and reverse a trend toward the dissolution of societies and effective
nation states? Can normative values of civilized human relations and scientific
reasoning prevail over the exercise of raw financial and military power?
These were the principal themes addressed by the conference.
International Financial Liberalization
The expected gains of international financial liberalization have not
materialized. The last two decades associated with globalization and liberalization
have experienced significantly lower growth than the quarter century after
World War Two. Latin America - the region where economic reforms were
implemented earlier and with more enthusiasm - has grown at 3.2 per cent
a year in the 1990s. That is far below the 5.5 per cent growth achieved
in the 1950s and 1960s). As policy influence of financial interests has
grown, (e.g. greater central bank independence) there has been a deflationary
macroeconomic policy bias through the world economy, reflected in high
real interest rates. This contrasts with the first post war decades suggesting
that moderate inflation and mild financial repression were conducive to
growth.
Currency and financial crises have become more frequent and severe; international
economic inequalities have grown, and aid flows have reduced. Financial
liberalization has undermined deployment of financial policy instruments
to accelerate development, which even the World Bank 1993 East Asian Miracle
study acknowledged was successful in promoting growth and structural change
in the region "The Bretton Woods Institutions (BWIs) have been increasingly
seen as obstacles to development because they have taken advantages of
economic distress to push through policy agendas promoting economic liberalization
favouring transnational - especially financial - ascendance". It
follows that the big challenge for economic policy is ultimately at the
international level. The governance of international organizations has
to be fundamentally reformed to favour an equitable and sustainable development,
rather than assuming that liberalization and globalization will somehow
miraculously achieve this objective (Jomo).
"A New Financial Architecture as a Global Public Good" requires
the following four conditions: transparency and regulation (including
counter-cyclical elements) of international loan and capital markets;
an increase in international official liquidity in distress conditions
for middle and low income countries; standstill and orderly debt work
out procedures, and sufficient development finance for countries that
cannot receive private flows. Significantly, the author of these comments
noted that if progress is not made soon, or worse if there are reversals
in the existing financial architecture that would make it even less supportive
of development, developing countries might need to seriously re-think
their development strategies. This implies two elements: measure to limit
or slow down opening of the capital account to protect themselves from
volatility and reversals in capital flows; and increased reliance on domestic
policy to generate growth "from within" (Sunkel) by " active
productive development policies" (Ocampo) or "domestic investment
strategy" ( Rodrik). A new development agenda needs to give thought
to new policy instruments that can provide public resources and incentives
to give support and guidance to the private sector. This "opening
of spaces for development from within" would be particularly essential
if the IFS is not reformed. However, it would be very valuable even if
the IFS were reformed, in generating a positive dynamic of interaction
between stable private capital flows and domestic growth quickened by
national efforts. (Griffith Jones)
The mechanisms by which the free international movement of short term
financial capital expose countries to disruptive structural fragility,
and deprives them of even the most basic instruments of stability and
austerity was described with exemplary lucidity by a contribution from
the intellectual front line of a recent major casualty - Turkey. In an
open economy, the central bank can choose only one of three of the following
instruments: exchange rate, interest rate, and money supply, leaving the
other two to the play of market forces. Raising the net differential of
the interest rate and the rate of depreciation of the exchange rate over
world levels, triggers large capital inflows. The exchange rate appreciates,
exports become less competitive, import demand escalates, the current
account deficit widens - until there is a loss of confidence in the domestic
currency. To offset increased country risk and protect international creditworthiness,
the monetary authority raises interest rates even higher and starts to
hoard foreign reserves. This attracts further inflows of short-term capital.
To check the surge in the value of the money supply, the central bank
engages in monetary sterilization by restricting the domestic component
- with a consequent rise in the domestic interest rates. The cycle recommences.
The bonanza of debt financed public (Turkey) or private (Mexico) spending
escalates - until finally the bubble bursts and a series of severe macroeconomic
adjustments are enacted through very high real interest rates, and severe
reductions of public and private expenditure. Meanwhile, the short term
"hot" money has rushed out of the country, leaving a cascade
of bankruptcies. The net earnings appropriated by the foreign portfolio
investor is the difference between the (high) interest earned in the domestic
economy and the (nominal) depreciation of the local currency. The conclusion
of this story is that countries that are dependent on unrestricted external
capital flows are obliged to adopt or maintain contractionary monetary
and fiscal policies to secure investor confidence and international creditworthiness.
They suffer from increased volatility of output growth, short sightedness
of entrepreneurial decisions, and the informalization of labour markets.
It follows that many of the remedies suggested for avoiding future crises
"will do no such thin" Among such measures are financial sector
reform, better information, cleaning up corruption in lending, getting
government out of the targeting business, and improving the governance
of the corporate sector. "Notwithstanding the importance of these
structural reforms, the single most important source in our analysis for
a crisis to develop was short term financial markets open to international
financial flows which are navigated by the herd behaviour induced by the
speculative and short sighted portfolio investors. The primary remedy
for attaining sustained development lies in regulating short term international
flows." (Yeldan)
The Developmental State
In the low income countries of Sub-Sahara Africa, the multilateral financial/economic
institutions controlled by the major western powers have directly promoted
socio-economic policy ‘reforms" based on a market driven economy,
curtailment of state intervention, and retrenchment of government expenditures.
Debt rescheduling and new lending is accompanied by an array of conditionality
and cross conditionality clauses which essentially compel countries in
economic distress to embrace these neoliberal policies. Notwithstanding
repeated acknowledgements by the World Bank of multiple shortcomings of
these policies, orthodox structural adjustment programmes continue to
be administered to African countries.
Since the Asian Crisis, various alternatives to neoliberalism have received
increasing attention. At the heart of some of these alternatives is a
concern to bring development back into the mainstream of economic and
social policy making Contrary to the suggestion that African experience
of state intervention in the first two decades of independence were wasted
years, in the 1960s and 1970s Africa consistently achieved growth rates
equalling the best performers in a world scale. Strong developmental agenda,
linked with the nationalist independence project - whether officially
described as ‘socialism', or "market/capitalism" or a
"mixed" economy - contrast with the "maladjustment"
of the 1980s and 1990s, characterized by a massive erosion of capacity
in virtually all spheres of life. "The close inter-connection between
the aspiration for rapid national economic development and the goal of
nation building in Africa in the 1960s and 1970s represents a far cry
from the adjustment years when every effort was made, as part of the rolling
back of the frontiers of the state, not only to jettison national planning
- and in so doing transform the entire continent into a gigantic laboratory
for unaccountable and questionable experiments- but also to subordinate
politics to the dictates of a narrowly defined notion of the market economic
system"
National economic development, national unity, and independence are goals
which were, and still remain impeccable. However, the tragedy of the post
independence developmentalism was the assumption that only the state could
attain these objectives. This provided the context for the restriction
of expressions of political pluralism, and the eventual emergence of single
party and/or military regimes. To place development back to the top of
the agenda requires a dynamic model of state participation in the economic
and social process and a system of democratic accountability. The popular
quest for democratic representation will have to be taken fully on board
in the policy making process.
"Given the extreme gap between the promises of market-based reforms
and the actual achievements recorded, there is an objective basis for
jettisoning structural adjustment in favour of more heterodox economic
policy framework, more attuned to the realities and needs of African countries
in all spheres of life. This will require a large investment in re-building
the effective capacity of the state for policy formulation and implementation
to revive the real economy of agriculture and industry, which suffered
some of the worst setbacks during structural adjustment, and to make strategic
decisions in the area of economic and social infrastructure to generate
employment and produce skills necessary for national development".
(Olukoshi)
The re-assertion of the role of the developmental state confronts a large
body of literature on the "impossibility" of replicating the
successful Asian experience in Africa. The African state is demonized
as a "rent-generating institution" whereby special interest
group manipulate politicians and bureaucrats to their advantage. . In
an important article on "Thinking About Developmental States in Africa"
Mkandawire observed that "rent seeking" has departed far from
its original definition in economics and made to serve as an ideological
weapon of neoliberal critique of the state. The concept has been stretched
to include anything from Mafia like activities to lobbying by chambers
of commerce. In the case of Africa, rent seeking is used interchangeably
with corruption, patron-clientalism even the extended African family.
In his introductory remarks to the conference, he noted, "The wide
recognition of ‘government failure' has been used to override any
argument for the need to correct for ‘market failure'. Even economists
who have contributed to the elaboration of models suggesting the need
for state intervention (endogenous growth theories etc) have either shied
away from explicitly drawing the interventionist implications of their
analysis, or have been constrained to negate the strategic implications
of their models by arguing that the state cannot be trusted with the task
since the likely outcome of government failure would be worse than ‘market
failure' ". (Mkandawire).
Following repeated failures of the Washington Consensus, "second
generation" conditionalities have been added on to standard macroeconomic
adjustment programmes. These "governance" conditionalities include
transparency, accountability, elimination of corruption, poverty alleviation,
participation and democracy. All of this is supposed to be "owned"
by states too weak and incompetent to determine their own developmental
priorities!! While negotiations for HIPC debt relief now engage recipient
governments and civil society in discussion of poverty reduction strategy
papers (PRSP) and the World Bank has introduced "comprehensive development
frameworks", the underlying macroeconomic policies continue to be
set by the BWIs. "Unless genuine debate can be extended to the design
of structural adjustment programmes, real ownership of programmes cannot
be in the hands of recipient countries. Because "foreign aid and
concessional loans are in short supply, ...the granting of debt forgiveness
through HIPC facilities becomes a convenient de facto rationing device
for aid allocation". (Nissanke)
The Male Breadwinner Bias and the Unpaid Care Economy
In the Golden Age of development economics, the stated policy objective
was national development by industrialization and diversification of structures
of production. In the era of the neoclassical counter-revolution, the
stated policy objective was the efficient use of resources by freeing
global markets for goods and capital (but not labour). In both cases the
measure of success was growth of GDP, which was expected to reduce household
poverty and international inequality between countries. Although, as already
noted, in the first post world war decades growth stronger and finance
less predatory than, poverty, marginalization and inequality have grown
through the past 50 years, albeit more rapidly in the last quarter of
the 20th century.
Both "state" and "market" oriented development deal
with the "commodity economy" to the exclusion of the "unpaid
care economy" in which people produce services for their families,
friends and neighbours on the basis of social obligation, altruism and
reciprocity. The care economy is important for two reasons: the first
is that inputs of unpaid work and outputs of care are very important for
human well being; the second is that although the unpaid care economy
is outside the production boundary, its operations affect the quantity
and quality of labour supplied to production, and the quantity and quality
of goods demanded from production. It affects the social framework within
which market and state are embedded.
Feminist economics has made a major contribution to the development discourse
by exploring the relation ship between the social economy of care and
the commercial economy of paid work. The former is predominantly done
by the unpaid labour of women. , Gendered social norm's about "men's
work" and "women's work" means that men's work tends not
to be re-allocated to "women's work" when there is decline of
demand for "men's work' and an increase in demand for "women's
work" The likely outcome is unemployment for men, and overwork for
women. Ignoring the contribution of unpaid domestic labour is tantamount
to assuming that women's capacity for extra work is infinitely elastic.
But it is not. If there is not enough female labour time to maintain the
social reproduction, there will be a long run deterioration in health,
nutrition and education. Gendered analysis beings together what has generally
been thought of as "the economy" (monetized aspects of life)
with what has often been thought of as the sphere of the "social"
(non monetized aspects of life), without however dissolving the difference,
as in the "new household economics" based on the application
of rational choice theory to social life.
The approach offers important insights into the relationship between economic
and social policy. As noted in previous sections, prevailing practice
is to devise ‘sound' macroeconomic policies and then add on social
policies to achieve desirable social outcomes. These macroeconomic policies
are less concerned about real resource constraints than financial constraints
which depend on ownership and control of financial resources, and willingness
of different groups to pay taxes and buy government bonds. What is ‘sound'
in terms of balancing budgets can be quite ‘unsound' in terms of
destroying human capacities, as people loose access to employment and
essential goods and services.
Elson favours a socio-economic approach based on (Amartya Sen's) entitlement
success and failure, and a human rights approach of the accountability
of states actors and international organizations for economic, social
and cultural rights. Because entitlements can operate either through buying
and selling in "liberalized' markets, or by universal state based
rights, this discourse cannot escape tensions of "market and state".
At this point Elson introduces the "technocratic calculation versus
popular deliberation" argument. Macroeconomic policy is typically
in the domain of an economic priesthood wielding mathematical models,
while civil society is invited to discuss social policy planning without
voice or choice in macroeconomic policy. This always leads to a situation
where social and human development and equity takes a back seat to financial
considerations. We are back to the effective veto of financial markets
over autonomous policy formulation. With reference to experiments in Bangladesh
and Canada (Culpeper), with participatory development of alternative national
budget, taxation and monetary policies to achieve a range of social goals
including gender equality and the protection of human rights, Elson concludes
that this option is foreclosed not by the technical requirements of macro
economic policy, but by the fear of pre-emptive exercise of the "exit"
option by financial institutions The "openness " of capital
markets is associated with an absence of "openness" in policy
discussion.
Re Thinking Development Economics
The conference addressed the challenge of producing a new generation of
development economists with professional competence and critical perspective.
A spectrum of views was expressed. Van Arkadie pointed out that most working
economists have to work within the terms of the prevailing paradigm of
conventionally established economics. Few reach the level where they can
demand the use of an alternative intellectual framework Moreover, when
used sensibly, conventional economics provides a useful toolbox for many
policy tasks. Therefore working economists have to have a solid command
over standard economics, including basic principles and econometric techniques.
Sophistication in required in understanding the hidden biases in received
doctrine; comparative historical and contemporary experience and the national
history of policy and economic performance. In that regard, we must ask
how far knowledge useful for policy-making lies within conventional boundaries
of economics, rather than in historical, political and social studies.
What is required is a specific analysis of the forces that eroded the
capacity of the African states and the requirements for change - both
in terms of technocracy and political economy. (Van Arkadie).
A somewhat similar view is expressed by Helleiner who favours an approach
of greater respect for and competence in applied economics in a variety
of fields (public finance, money, trade, open-economy macro, health, etc.)
with particular reference to developing economies in all their institutional,
cultural, political and historical variety "I suspect that it may
not be productive to try to resurrect the "grand theorizing"
of the "greats" (Lewis, Nurkse, Rosenstein-Rodan, Hirschman,
etc), or to try to build on the "new growth" literature. The
material is far too general to have much policy influence. In his view,
the root of the problem lies in mainstream post graduate economics programmes
which train the teachers and practitioners of most developing economies
today." We must try to reduce the relative importance assigned to
purely abstract reasoning, re-balance economic theory courses to place
traditional neoclassical assumptions into their appropriate context ,
restore economic history and the history of economic thought to the core
curriculum and insist on greater relative emphasis on empirical and policy
analysis" (Helleiner).
A more positive view of the contribution of development economics to heterodox
alternatives to the mainstream policy discourse came from Jayati Ghosh.
"Economics as a discipline has always been concerned with development.
The early economists from the Physiocrats through Smith, Ricardo to Marx
were essentially concerned with understanding the process of economic
growth and structural change and to what extent they actually led to greater
material prosperity and human progress" (Ghosh). Trying to understand
the process of growth and development remains the basic motivating force
for the study of economics .It would be misleading to treat (development
economics) as a branch of the subject, since the questions raised touch
at the core of the discipline itself. In the 1980s, development economics
was first reviled, then ignored, and finally forgotten.
Recent times have seen a revival of interest and a spate of new textbooks,
with sharper focus on "micro" efficiency reflecting the intellectual
ethos prevailing in academic centres of the North. The new development
economics literature remains firmly entrenched in the methodological individualism
which characterized all the mainstream economics of today. It could be
described as a sort of "National Geographic" view of economic
development whereby snapshots of "exotic" institutions and activities
are described and distances from the "‘norm' of developed capitalism
are explained using the same analytical tools developed for the ‘norm"
On the basis of this analysis, policy proposals are suggested to make
the institutions of exotic countries more like those of the norm. She
questioned whether this new apparently improved development economics
is really not worth saving. A better way might be to find alternative
ways of addressing the still fascinating and relevant issues of growth,
development, structural change, and inequality in all economies, especially
those not characterized as ‘developed".
A starting point of an alternative approach is the (political economy)
idea that relative prices are neither determinants nor reflections of
"efficiency" but reflections of different power configurations
- compatible with chronic under utilization of capital and labour. Such
patterns in national markets have a clear corollary in international (world)
markets, which in turn affect the inter actions of national economies.
Following a political economy approach, wages, profits rent and interest
each have to be explained according to different principles, rather than
coming out of the same wash as "factor payments". This gives
history a very different role. It calls into question the role of ‘factors
of production"' as somehow "natural" to the economic system.
In this perspective, markets and governments are revealed as social institutions
and we cannot escape politics - whether at the national or at the international
level. The study of development is ultimately the study of all economies
and can draw on a rich resource of theoretical and empirical work in many
intellectual centres in developing countries (Jayati Ghosh).
Because structural changes in the world system have altered some of the
fundamental propositions of the earlier development economists, a reconsideration
of development economics is warranted to address the following questions.
Does easy access to large pools of international liquidity now permit
developing countries to finance larger current account deficit? Does this
mean that highly protectionist policies of the past to deal with external
vulnerability are no longer necessary? Or does it expose them to new kinds
of vulnerability which warrant different kinds of insularity? Do growing
opportunities for the export of "new economy based" services
require policies different from those of the 1950s and 1960s? Finally,
has liberalization generated structures which make a substantial roll
back of the liberalization process difficult? Or stated otherwise, does
path dependence foreclose policies that derive from the existing set of
stylized facts? (Chandrasekhar).
Gita Sen expressed the view that we have not adequately addressed the
changes in the regime of accumulation and modes of regulation that underpin
the neoliberal thrust, especially changes in the labour process associated
with the information and bio technical revolutions. These deep and widespread
changes have transformed the core of agricultural and industrial production,
opening new frontiers for technology and research. This third (?) industrial
revolution associated with "globalization" has broken three
major social compacts of the post war World War Two mode of regulation:
the compact between worker and employer (private or state); creating space
for a new "flexibilized" younger female workforce; the social
security/welfare compact of citizen rights to entitlements is weakening;
and the development assistance compact between North and South has been
eclipsed by focus on governance and corruption. All three of these compacts
were gender biased. She noted positive aspects of new modes of regulation
including the recognition of "informal" and home based work;
the use of a tax on financial transactions in Brazil to finance a universal
health system in which women's health has a central place; and South-South
linkages to break the monopoly of pharmaceutical companies. She favoured
a shift from traditional development economics to development studies,
where an understanding of participatory approaches to rural development,
the importance of sustainable livelihoods and the need for a gendered
analysis of development have flourished, and a definition of development
as means equitable improvement in the quality of life; genuine democratization,
and the guarantee of full human rights for all.
In the paper summarized earlier in this report, Diane Elson called for
an emancipatory socio-economics. Her starting point was the need to re-think
all economics, not only the kind of propositions applied to developing
countries. Neoclassical economics does not work well for any country.
If neoclassical economics is allowed to appear (even by default) as appropriate
for rich and powerful countries, any reconstituted development economics
will continue to be marginalized." Reducing all observable phenomena
to the outcome of an exercise in constrained optimization by representative
individuals is not a mark of scientific rigour, but impoverished imagination".
It ignores the evidence that human behaviour is much more complex. It
grossly oversimplifies the interaction between agency and structure, and
fails to understand complex social phenomena that are inherently unstable
and subject to change, or social objectives which are an open-ended process,
or how economic and social policy should interact.
Lim expressed the view that the revival of development economics should
be outside the paradigms and methodologies set by dominant mainstream
economics - without a complete break with mainstream economics practitioners,
since our goal is eventually to win over the more sincere and good hearted
of our colleagues. Beside, there are many things to be learnt from the
work of good economists (of different ideologies) like, Keynes, Hayek,
Tobin, and more modern ones like Amartya Sen, Douglas North, Joseph Stiglitz
or Dani Rodrik. Some of the great economists or thinkers, discarded by
mainstream economics, -Marx, Schumpeter, Mydral, Joan Robinson to name
just a few - should be re-integrated into our new development economics.
There is fertile ground for inter disciplinary work incorporating Keynesian,
Marxian, structuralist, sociological, psychological and political theories,
new institutional theories, and post-modern insights. Above all, the new
development economics should have a historical context and take into consideration
institutions, socio-cultural values and practices and governance structures.
Whatever methodology is used, "the importance is a sincere effort
to get at the essence of development in a historical and institutional
setting" (Lim).
The critical role of institutions in the transition from socialism to
capitalism was explored in a paper on the relation ship between economic
liberalization, institutions of governance and economic performance in
East Europe, the former republics of the Soviet Union (FSU), the Baltic
States, China and Vietnam. A statistical analysis yielded "the important
conclusion that " there is enough evidence that differing performance
during transition, after factoring in initial conditions and external
environment, depends mostly on the strength of institutions, and not so
much on the progress of liberalization, per se" In the language of
political science, "strong authoritarian regimes" (China, Vietnam,
Uzbekistan) and "strong democratic regimes" (Central East Europe)
exhibit better economic performance than "weak democratic regimes"
( the FSU and the Baltic states) The former two are politically liberal
or liberalizing, i.e. protect individual rights, including those of property
and contract, and create a framework of law and administration, whereas
the latter, although democratic, are politically not very liberal because
they lack strong institutions and the ability to enforce the rule of law.
This gives rise to "illiberal democracies" where competitive
elections are introduced before the rule of law is established".
While European countries in the19th century and East Asian countries recently
moved from first establishing the rule of law to gradually introducing
democratic elections, in Latin America, Africa and now the CIS countries
democratic political systems were introduced in societies without the
ability to enforce the rule of law and order. By focussing on liberalization
and macroeconomic stabilization the conventional wisdom overlooked the
impact of strong institutions. The importance of preserving strong institutional
capacity of the state may be considered as the main finding of this paper,
with strong policy implications. Liberalization alone, when it is not
accompanied by strong institutions, cannot ensure good performance. The
debate about the speed of liberalization (shock therapy versus gradualism)
was to a large extent mis-focussed, whereas the crucial importance of
strong institutions was overlooked. Vietnam (rapid liberalization) and
China (gradual liberalization) both made a successful transition. The
Gorbachev reforms (1985-91) failed not because they were gradual but due
to the weakening of the state institutional capacity leading to the inability
of the government to control the flow of events. The Yeltsin reforms in
Russia, as well as economic reforms in most of the FSU states, were so
costly, not because of the shock therapy, but due to the collapse of the
institutions needed to enforce law and order and carry out manageable
transition ( Popov) .
A fascinating paper by Mark Wuyts on changing perceptions of poverty and
unemployment over 200 years of industrial capitalism illustrates the analytical
power of a political economy approach to the rise and decline of wage
labour in the capitalist world economy. A comparison of early industrial
capitalism in England with mid 20th century "underemployment"
reveals the "disguised" or "hidden unemployment" of
the early development economists as a rediscovery of Marx"s earlier
notion of the latent surplus population as part of the "reserve army
of labour" as a latent surplus population. Before wage labour was
institutionalized in the industrial capitalist countries, the concept
of unemployment did not exist. In public debate in the 19th century, it
was "pauperism", not unemployment that occupied centre stage.
In the 1950s, the early development economists saw wage labour as a process
in the making. They talked about economic growth in terms of the absorption
of "surplus labour" by employment in the "modern sector".
In the last two decades of the 20th century, however, there has been a
marked shift away from these early concerns and from the concepts which
embedded these concerns in theory (wage employment). "While the pioneers
talked about employment and growth, the new "international consensus"
talks about " pro-poor growth". Poverty, rather than unemployment,
has become the key concern. "The transition from unemployment to
poverty is interesting once we take note that about a hundred years ago
the opposite transition took place - away from poverty (or "paupers")
to unemployment. The paper addresses this conceptual reversal in economic
discourse" from poverty to unemployment", to "from unemployment
back to poverty" and situates it within the broader process of what
Makoto Itoh has called a "spiral reversal" in capitalist development
since 1980s." The aim of this paper is to re-assert the continued
importance in development economics of looking at poverty, inequality
and deprivation from the perspective of accumulation, the employment relation,
and the dynamics of unemployment" (Wuyts).
After one hundred years of exposure to capitalism, the majority of the
labour force remains underemployed in all the countries of Southern Africa.
The formal sector accounts for less than 20 per cent, with the exception
of South Africa, where it is as high as about 45 per cent. The low labour
absorptive capacity of African economies is addressed in a paper by Mhone
in terms of the legacy of "enclave growth" and the failure of
policy regimes both of socialist and market type to address the structural
roots of the problem by policies of omission and commission. The implication
is that pro-active policies are needed in addition to the usual market
friendly measures to undo the vicious circle of perpetual under employment
that afflicts the majority of the labour force. The author finds the approach
of Baran and Lewis useful in illuminating the internal constraints to
market led growth in an economy dominated but not completed captured by
capitalism, and in demonstrating the inter active nature of external and
internal factors in perpetuating underemployment unless specific interventions
are undertaken. (Mhone)
How to Promote a New Development Agenda?
The substantive content of these and other papers presented at the conference
is proof, if proof were needed, of the critical importance of reclaiming
and re-invigorating development economics within the broader framework
of political economy and development studies. How to effectively challenge
the neoliberal paradigm? How can we institutionally facilitate the replacement
of the old paradigm with new perspectives? As Stiglitz noted in his communication
to the conference, the competitive paradigm is taught in practically every
graduate program in the world. Many of the ingredients of an alternative
paradigm are hardly mentioned. However the time for challenging the current
reigning paradigm may be ripe, as dissatisfaction with globalization grows
and the spotlight placed on it highlighted many of its deficiencies. "A
strategy of replacing the neoliberal agenda with an alternative requires
more extensively "challenging" both the assumptions and the
conclusions of the standard paradigm. By exposing more explicitly the
incidence of the policies (who benefits; who bears the risk) and by analysing
more explicitly the political economy (who makes the decisions; whose
interest do they serve) the legitimacy and the credibility of the policies
will be undermined, and thereby the support for them".
It is crucial to achieve more visibility within the leading educational
institutions. This requires two things. First "capturing" graduate
students at an early stage, before they have fully ‘bought into"
the neoliberal paradigm; secondly, because achieving tenure in leading
educational institutions requires publication, and many journals are not
as open to alternative perspectives as they should be, the creation of
a high quality referred journal (partly internet based) may help to rectify
this problem" Other suggestions include summer institutes to provide
students interested in alternative paradigms with opportunities to become
acquainted with perspectives which they would not normally encounter in
more conventional graduate programs, and help them develop a research
program for their PhD. while building a network of supportive intellectual
relationships. To be effectives such institutes would have to recruit
some of the world's leading development scholars (Stiglitz).
Helleiner's comments replicated much of the above, with the additional
advice that we must win back socially motivated students who are at present
completely "turned off" by postgraduate economics programmes.
He also observed that current screening mechanisms for postgraduate studies
in economics discourage many of those the profession now most requires,
and attracts instead those with a predeliction for abstract reasoning,
mathematics and avoidance of political or "value" judgements.
This raises the question of where a reformed economics programme can be
built, while at the same time "standards" and "prestige"
are retained in the ‘job market".
While the problem described by Stiglitz and Helleiner, and the suggestions
they offer address the academic curricula in major academic institutions
of the North, the relevance to the South in general, and the Caribbean
in particular is threefold:
1) requirements for admission to Northern graduate economics programmes
determine what must be taught to students aspiring to gain entrance to
good graduate schools;
2) standards and practices of the North determine "best practice"
in universities of the South; as pointed out by several participants,
"economic development" will not be re-established as an attractive
area of study in graduate schools in the South until it re-gains ground
in the North;
3) the need to restore the history of economic thought and economic history
of the world capitalist economy system to core economics curricula are
equally valid for universities in the South, including the Caribbean.
In academic institutions of the South, "economic development"
is - or should be - central to all policy discussion. In fact, a great
deal of empirical and theoretical work is being done by scholars in the
South. The problem is one of intellectual isolation of economists searching
for alternative approaches in academic environments dominated by the hegemony
of neo-classical economics, without resources to access to important new
material or contact with like minded scholars on an international scale.
To meet the evident need for institutional networking especially South-South,
the Cape Town conference gave birth to an important initiative. The proposal
is to create an International Development Economics Associates (IDEAs),
headquartered at Jawaharlal Nehru University in New Delhi, as a pluralistic
network of heterodox economists engaged in the teaching, research and
application of critical analysis of economic development. While the organization
will be South-based, the network will be open to all committed to developing
more appropriate and progressive analysis s of development challenges.
The proposed activities include
1) Setting up and managing a web site to facilitate the network. The website
would warehouse existing and ingoing research work on development economics
from heterodox perspectives; provide short analyses of current economic
developments; make available and encourage the sharing of teaching materials
such as reading lists and references on specific areas; provide links
to other relevant websites; facilitate e mail based discussion on particular
matters;
2) Organizing thematic workshops designed to bring together experienced
researchers with younger academics and policy makers, around specific
topics or areas. These workshops will have an important pedagogical component
of enhancing knowledge and capability among a younger generation;
3) Facilitating exchange visits across developing countries by scholars
of repute as well as by young researchers who will benefit from the experience.
Such visits should be by those resident or working in developing countries,
to other developing countries to widen comparative experience;
4) Developing, publishing and disseminating resource materials and the
eventual planning and launching of a refereed journal.
Some Conclusions and Suggestions
There is much to be learned from the initiative by heterodox economists
from the South, in responding to the monopoly of neoclassical economics
in teaching and policy research.
Teaching programmes should introduce students to a variety of approaches
to economics, including post Keynesian, structuralist, institutionalist,
Schumpeterian, Marxist and neo-Marxist etc. in courses on the history
of economic thought.
Development economics should have a central place in curricula, with emphasis
on the fact that all economies are to a greater or lesser degree open
to trade and capital flows (Development Macroeconomics). It should be
taught historically, accompanied by a comparative review of the experience
of economic development in Asia, Africa, Latin America and the Caribbean
from 1950 to the present.
There is much to be learnt from the "greats" of development
economics. For the Caribbean, the work of WA Lewis and Raul Prebisch are
of special significance. The three great themes of development economics
- "growth and equity"; "market and state"; and "trade
and development" remain central to the economic development discourse.
(See my paper on "Reclaiming The Right To Development").
We should explore links with the IDEAs project and take it as a guide
for developing a Caribbean internet based network (website) for ACE.
Caribbean Economics
I believe the time has come to break out of a provincialism which does
not serve us well. We have to re-examine the idea of ‘Caribbean
economics". What do we mean by this? Certainly, Caribbean economies
have specific characteristics due to common geographical location and
historical experience (as plantation economies). It is increasingly recognized
in the literature of "socio-economics" that markets are institutionally
embedded in a social/legal/cultural matrix. Mainstream economics abstracts
from the political and social environment, and the historic legacy. That
is a valid critique. Caribbean economists of a previous generation (the
plantation economists) were pioneers in identifying some of the institutional
characteristics of Caribbean economies. The ultimate purpose behind our
work was to point the way to a more self-reliant development "from
within". Excepting Cuba, experience in that direction has not been
impressive. Indeed, there has been regression and a serious loss of policy
autonomy. This is not unique to our region. There is a growing opinion
in the South that "globalization' is a straightjacket which privileges
financial investors at the cost of policy autonomy of developing countries
to determine development objectives and priorities. See among others,
Ocampo (2000)
In the 1980s and 1990s, a fundamentalist strain of neoclassical economics
gained a hegemonic position in the Anglo American academic establishment,
with feedback to graduate programmes in the South - including the Caribbean.
A defensive reaction to protect the traditional of "Caribbean economics",
together with the influence of funding agencies in determining research
priorities on Caribbean social issues, has created a climate of provincialism,
and almost wilful ignorance of larger issues in the rest of the world.
As implied in my WALewis memorial lecture, we have been quite parochial
in our treatment of Lewis, focussing exclusively on his writings on the
Caribbean, ignoring the fact that Lewis, more than any other economist,
established "development economics" as a discipline within economics
- with all its faults and shortcomings. (I received several comments on
the Lewis memorial lecture from economists all over the world, but (excepting
Mark Figuaro) none from the Caribbean).
Parochialism is inexcusable, especially in the Caribbean which has multiple
links with all four corners of the world - Africa, Asia, Europe, and the
Americas. There are useful models of collective and comparative research
programmes - including a CEPAL project, with an interesting historical
component (in honour of Raul Prebisch). We might consider a similar comparative/historical
study of the countries of the Caribbean, with (collectively agreed) historical
phases; or, a more topical comparative study on "export oriented
development" in the Caribbean since 1980. Or comparative experiences
of macro-economic stabilization (why is Barbados successful and Jamaica
such a mess); or experiences of privatization of public services and infrastructure.
In all these cases, the first step would be to organize a workshop where
participants would share their knowledge of relevant literature and experiences
in other (non Caribbean) developing countries, applicable to the subject
under investigation.
Finally, while empirical research is essential, we should not be afraid
to confront big questions and big issues - globalization, environmental
degradation of soil, air and water; diseases - old and new - which consume
and ravage lives; and violence in its aspects - domestic, criminal and
military.
I believe it was Keynes who said: "let ideas be international, but
above all let finance be national. Perhaps that is no longer possible.
But it is clear that global capital cannot be permitted unstrained freedom
to enter and exit economies, leaving a trail of bankruptcies, treasuries
drained of foreign exchange, and livelihoods destroyed. Ideas, however
can - and should - circulate freely across the globe. Knowledge is power
- a foundation for the solidarity of peoples struggling for a better life
for the Caribbean - and the world.