Paradigms in Development Economics Richard Scholz, 14.01.2014 Content 1 Introduction .................................................................................................................. 2 2 Early Development Economics ................................................................................... 2 2.1 Modernization Theories ........................................................................................... 4 2.2 Structuralism and Dependency Theories ................................................................. 7 3 Washington Consensus ............................................................................................... 9 3.1 Methodological Issues ............................................................................................10 3.2 The Role of the State .............................................................................................11 3.3 Trade Policy ...........................................................................................................12 3.4 Agrarian vs. Industry Sector ...................................................................................13 4 Development Economics beyond the Washington Consensus ...............................13 4.1 The East Asian model of development ...................................................................16 4.2 Latin American Neostructuralism ............................................................................25 4.3 New Development Economics ................................................................................27 5 Summary ......................................................................................................................34 6 Literaturverzeichnis ....................................................................................................36 1 1 Introduction According to Kuhn a paradigm which is closely related to the normal science represents universally recognized scientific achievements mostly expressed in textbooks that, for a time, provide problems as well as solutions for a community of practitioners (Kuhn 1989, 25). Kuhn (1989, 59) proposes further that the analysis of scientific history of ideas and paradigms will not end in identifying generalizable and strict system of rules. In contrast the common ground of paradigm is more comparable to Wittgenstein’s concept of family resemblance (Familienähnlichkeit). The book “Structure of Scientific Revolution” of Thomas S. Kuhn provoked several famous criticism (see Lakatos 1970) probably the most famous critic was the one of Margaret Mastermann (1970, 61–65) stating that the notion “paradigm” is used in not less than twenty-one different senses. Answering this critique, Kuhn (1970, 271) is proposing the term “disciplinary matrix”. However the notion “paradigm” became into use and Fine (2002, 2061) argues these twenty-one interpretations can be boiled down into three: an exemplar, a world vision and a body of professionals. Irrespective whether the Kuhnian framework can be totally applied to the field of development economics it seems to help to enhance the understanding the field of study. The following analysis of development paradigms should be regarded in this manner which is in compliance with the common use of the phrase such as it used by Fine (2010a) or Stiglitz (2002). 2 Early Development Economics After decolonization and political independence the newly established governments has been thinking about economic independence of their former colonial masters. Especially the quest for industrial self-sufficiency became apparent since the former colonies had been serving as market for industrial goods and exported mainly raw materials and food. A greater economic strength accompanied with military strength could be achieved via a rapid industrialization which in turn facilitated the preference for economic planning and public control as well as hostility for foreign direct investment. The challenges of decolonialisation and the accompanied problems of late industrialization thus lead to the birth (emergence) of development economics. Of course problems of development had been of course part of economic theory (Szentes 2005, 156; Jomo & Reinert 2005). According to Srinivasan (2000, 171) all of economics has been development economics until the advent of neoclassical economics and only since the second half of the twentieth century only few studies on growth and development has been published.1 The 1 Srinivasan (2000, 171) makes assumptions for Allyn Young (1876–1929) and Joseph Alois Schumpeter (1883-1950). 2 emergence of development economics as sub-discipline was driven by the assumption that much of economic theory is bounded to special conditions and preconceptions of the advanced industrialized countries that cannot be applied to developing economies. The best practice example was probably Albert Hirschman (1981) who distanced itself from what he calls “monoeconomics” meaning the same type of economics applied to developed and less developed countries. Thus, as long as countries exist which did not accomplish the transition to a developed country development economics would exist (Srinivasan 2000, 173). Economic theory after the Second World War was dominated by the rejection of the laissez faire doctrine which has failed so spectacularly during the interwar period. Thus development economist has been much influenced by Keynesianism which in contrast to the neoclassical view assumed that governments should actively intervene for economic development (Chang 2002, 539). Nonetheless the obvious differences between modernization and dependency theories, both theories exhibit a close historical and theoretical relationship. Several authors such as Srinivasan (2000, 191) or Gore (2000) argue that there has been a paradigm of development economics in the Kuhnian sense in the 1950s and 1960s which is the analogy to the Keynesian Revolution which replaced the former neoclassical view of economics. The paradigmatic dominance of early development economics was not only exhibited in scientific writings but also manifested in the relevant institutions. Development programs and national planning boards complemented by the already established Bretton Woods institutions including the IMF and the World Bank as well as aid agencies in the already industrialized countries provided the framework for underdeveloped countries at this time. Further the establishment of Unctad (1964) and Unido (1966) mainly based on the ideas of early development economists had been fallen into this time. Development economists had been characterized by sometime excessive historical analysis which had been used to derive empirical regularities which should be the base for understanding economic development. Ben Fine therefore concludes that early development economist had been framed by an inductive method (Fine 2010a, 64). Krugman (1994) also emphasizes their adherences to a discursive and non-mathematical style and even addresses their demise to their unwillingness or disability to put their ideas about imperfect competition, increasing returns to scale and external effects into formal mathematical models. Srinivasan (2000) contradicts this view, old development economics did not died because their founders were unable or unwillingly to codify their ideas into internally consistent mathematical models (Krugman 1994), in contrast they developed a rich tool of analytical methods like input-output analyses, linear programming and optimal growth models. In contrast, most development economists rely on their historical and discursive 3 style because of their conviction on the importance for interdisciplinary studies. Focusing on economic and social transformation including structural change, economics had to be complemented by other aspects of development studies. Modernization theories e.g. proclaimed the simultaneous progress of modernization in various aspects of cultural life such as wealth, equity, democracy and autonomy and thus had been subject for sociologists, political scientist as well as economist (Weiner & Huntington 1994, 6–11) Gore (2000) emphasizes that modernization as well as dependency theories had been of course been strongly determined by national concerns but their analytical and explanatory framework was global in the sense that development needed to be regarded within the system of international relations. Coined by the Keynesian revolution, they further agreed that economic structure matters for economic development and didn’t use microeconomic principles, rational optimization or equilibrium analyses in their models (Fine 2010a, 64). The focus on systematic economic and social factors had also been expressed in the structuralist view on the market which in contrast to the neoclassical assumption claims that markets for certain products and services simply do not exist, markets that do exist not always work in the manner that is expected and in some cases markets do exist where they are not supposed to be (Toye 1989, 33–34). According to Krugman (1992) these early and glory days of development economics were commanded by “great intellectual prestige and substantial real-world influence”. To get an impression of what these theories have been about the most famous ideas has been summarized on the next pages. 2.1 Modernization Theories The beginning of development economics in the 1950s were dominated by modernization theories.2 Economic growth became the main policy objective which can be achieved through massive