Import Substitution

• Economic Commission for Latin America in Keynesian tradition did study, determined that

– Labor had been able to keep wages high in advanced countries, passing costs on to developing world consumers

– Primary products prices have fallen, but since most are exported, rich world consumers benefit

• And so, went to ISI

– An attempt to replace imports with domestically produced substitutes

– Came about in 1960’s and 1970’s, as a way to move into lucrative, key industries without necessarily having an initial comparative advantage

• Breaks dependency on foreign money & goods

– By eliminating more advanced foreign competition, guarantees domestic market and time to for the company to mature enough to compete internationally

• United States, Germany, Japan have done this at one point or another

ISI (cont.)

– Done by:

• putting tariffs (import taxes) on competing products

• reducing tariffs on inputs for the newly domestically produced goods

• providing loans/grants for firms

– Success patchy at best:

• Brazil got decent transport, steel and pharmaceutical firms from this

• Very few domestic markets big enough for firms to achieve any level of efficiency

• Does not decrease inequality

– Goods produced for elites/middle classes

– Total imports often increased, because often only assembly happened locally

• Taiwan and S.K. find success using similar model for producing exports

Dependency Theory & World Systems

• Andre Gunder Frank showed that even remote parts of Chile & Brazil had been involved with the capitalist economy since 1600’s

– Thus capitalism as experienced there must of helped create underdevelopment and dependency

– Capitalist countries need this underdevelopment for their development

– Argued that any form of capitalism wouldn’t help

• Samir Amin and Emanuel Wallerstein developed World Systems Theory

– Looked at whole world as part of capitalist system

• Includes core, periphery and semi-periphery

• Though note non-capitalist production continues to exist side by side

World Systems Theory (cont.)

– Amin said the temptation of using low wages in periphery for manufacturing leads to overproduction;

• Wallerstein argued that this leads to cyclical crashes where weak firms are weeded out and productivity increases

– Also is an opportunity to move between levels (although the number of countries in each level is stable)

» System doesn’t work if all well off

• Accused of ignoring conditions w/in states; things happen b/c “system” demands it; does not explain success of developmentalist states like South Korea which have become more propserous

Development Critiques

• But all these (even world systems) are economistic theories

• There have been other theories practiced (as much as written), which argue that there are other ways to represent the world situation

– Gandhi changed the politics of representation, making the British appear alien instead of superior

• At the core: though malnutrition and environmental damage existed previously, most efforts at development have made things worse for the most vulnerable (usually rural, poor and female)

– For example, highways are meant to allow small farmers to access markets. Instead, it allows cheap imported food in to undermine local farmers

– Long been movements against the insensitivities of development

• In thinking this way, to believe you need development, means to accept your tradition as inferior and in need of changing

Development Critiques (cont.)

• Women in Development (WID)

– In the 1970’s, feminist authors like Esther Bosrup, noticed that development only addressed women as wives and mothers, not as economic breadwinners

• In Women’s Role in Economic Development, she showed that there were different economic roles for women depending on place, and that especially in Sub-Saharan Africa and Southeast Asia, women participated widely in the farming economy but had no access to formal credit

– Showed that planners had not taken women into account in their policies at all

– Development agencies, even by the 1980’s, accepted this as a true critique, and eventually development professionals and policy were increasingly gender balanced

• Critiques of Women in Development

– Like other forms of development, though, it came to be dominated by Western and Western educated women and colored by their views of universal sisterhood (and these women’s class position)

• For example, a woman from a wealthy family in India (or wherever), who goes to Harvard or Oxford probably has very little in common with a peasant woman from her own country

– Others said sometimes WID focused too heavily on changing patriarchy, without recognizing that both poor men and women need systemic economic changes

Development Critiques (cont.)

• Experts (though often for noble reasons) dominate development processes, and only their knowledge counts

– Experts (unconsciously) try to make the on ground reality fit what they know, to reduce it to something they understand

– Especially applied sciences (agronomy, forestry, husbandry, civic engineering) are one particular view of how to use a resource

• To transfer commodities to upper classes, development often creates other types of scarcity, degrades environment, undercut physical and cultural support systems

• In focusing on GDP growth, ignores the effects of self-provisioning of food, housing, clothing

– Often in terms of mining, state takes land used for something else without fair compensation

• Also, the nation state for too long was taken as the appropriate unit to target development policy, allowing those states to siphon off and direct benefits, while ignoring the internal diversities of most countries

Movements to improve livelihoods

• Environmental movements (against forestry, mining, dams) are amongst the most common

– In many places, people get benefit from land in ways that cannot be commodified

• Also some value ecosystems as having value in their own right, beyond whatever “use” they are to humans

– Often it is women who lead these movements, who get subsistence from these areas which are ignored in GDP and undervalued by development experts

• Urban movements want housing, water, health care, education and sewage disposal

– Some communities have organized self-improvement movements, where everyone pitches in for resources and together supply labor

– Community, not gov. decides what is needed

Alternative(s to) Development as it has been done.

• Must be:

– participatory

– gender inclusive

– sensitive to ecosystems and present patterns

• It is also should be locally controlled, not driven by a universal model

• In the last 5 years, most major development institutions now at least have begun to pay lip service to all these things

Trade under Colonialism

• Before independence, much of world divided into mostly separate trade blocks

– Colonies were linked with their parent country and traded almost entirely w/them

• Only parent countries/other rich countries traded w/ each other

– U.S. did not like the system

• Did not have many of own colonies

• Did not like the idea, having been a colony

• Thought it could do better in an open system

– Post WWII

• Axis lost their colonies; Allies in debt to U.S., opened trade blocks in exchange for loans

• Strong, organized independence movements in colonies combined w/ shifting focus to internal issues/communist challenge in Europe

Trade and Cold War

• Cold War between USSR communist block vs. US capitalist block

• A post-WWII scramble for influence in developing world

– Unlike colonialism, local elites had some control over whose orbit they would join

• The Allies decided on Ricardian free trade over Keynesian state led economics at Bretton Woods 1944

– Got fixed exchange rates, gold-backed currencies, dollar as currency of trade

Organizations

• As Susan Roberts said, understand capitalism not just as economic order, but a social “mode of regulation” with corresponding institutional forms

– Regulation changed as capital became more internationalized, colonialism ends, communism ends

– Done through trans-state Institutions

• Some organizations that existed prior to UN

– International Telecommunications Union and Universal Postal Union early examples of trans-state organization that kept international communication going

• Also non-UN institutions like NATO, EU

– G8 group of industrialized countries and World Economic Forum in Davos (rich, famous, politicos, academics) also set policy

UN

• Divided between General Assembly (all member countries) and Security Council (5 permanent members w/ veto, plus 10 others)

– Security council has more power, reflects victors in WWII

• Economic and Social Council reports to General Assembly (houses women’s, human’s rights bodies)

• International Court of Justice is the Hague, settles disputes between countries

– Switzerland, is a major host of UN organizations

• Office of Secretary General gets 5 year term, is chief administrative officer

– UN World Food Program, UNICEF, UN Population Fund, UNESCO (education, science, and cultural) all either part of, or work closely w/UN

– ICC (Intl. Criminal Court) finally set up, only minimal jurisdiction, many powerful countries not members

Institutions of Economic Order

• International Monetary Fund – promote long term monetary collaboration and provide policy advise

• International Bank for Reconstruction and Development – aka World Bank, would lend money for development projects

– Also houses International Development Association (poorest countries) and International Finance Corporation (private enterprise assistance)

– Based in Washington, D.C.

• Also proposed organizations to regulate international trade and labor

– Got General Agreement on Tariffs and Trade (GATT) and UN monitor International Labor Organization

• U.S. Senate opposed a larger organization for many years

World Trade Organization (WTO)

• Supplanted GATT after Uruguay round of talks in 1995

– Regulates services (GATS) and intellectual property (TRIPS), which GATT (goods) did not

– An organization, with agreements which must be ratified by member states individual parliaments

– Pro free trade & free (price) markets, anti-protectionism

• But protectionism successful for Asian Tigers, still used in agricultural sectors in U.S. and EU to support farmers

– Until those subsidies go, poor agriculture countries will not sign anything

• Helps not as much rich countries, but transnational corporations, and rich individuals all over the world

– Each state gets only one vote on the General Agreements (good); but, in individual confrontations, harder for small states to make cases (bad)

• IMF, World Bank votes distributed by amount of contribution (U.S. has the most)

Structural Adjustment

• More on this in Unit 2, but the main policy of IMF and World Bank (helped by a trade system established by WTO), was something called structural adjustment which emerged in the 1980’s

– It was at its heart anti-Keynesian policy/neoliberalism, where government was thought not to be an influence that can help through market rough patches, but what causes market problems because of rent seeking and politics (aka corruption)

• Certainly in the 1970’s, there was no shortage of corruption

– Not only was it a change in economic policy, but a change in policy from providing society freedom from want to promoting self-actualization and freedom from bureaucracy (since the idea of society did not exist for these thinkers, only individual actors in a market)

• Everyone is believed to be totally responsible for their own situation

Structural Adjustment

• The specific policies changed over time

– In 1980’s, was mostly about getting government out of the economy, by reducing regulation, state ownership and spending on services to both balance budgets and attract investment

• It was called “shock therapy”, with the idea that while coming to markets would hurt, it would be better in the long run

– In the 1990’s, state put back in to insure “best practice” as developed by core country economists

• Includes accountability, political stability, government effectiveness, regulatory burden, rule of law, control of corruption were key

– Very little about welfare and education

• If a country deviated from practices, were punished by both markets and IMF/World Bank

– By late 1990’s, recognition this wasn’t working either, so civil society is encouraged in the form of NGO’s to speak for the people

• Completely ignoring that the state should be for the people already and that who can start/organize effective NGO”s is not equally distributed throughout population

– In 2000’s, Jeffrey Sachs becomes ascendant, arguing that market-centric approaches are right in general, but that distance from rivers/coast and closeness to the equator makes people poor and that special steps are needed to overcome those handicaps (thus fighting tropical diseases)

• Completely ignores that history, and not latitude, helped impoverish equatorial countries

• Though it is important that now tropical diseases will get research dollars, not just first world diseases

TRADE

So what is Free Trade

• Free trade is when commodities are exchanged in markets which are unregulated by state institutions

• Free trade considered to be efficient provided countries make the right choices about what to specialize in

– This supposed to occur automatically as actors respond to market signals

– Choice is made based on what can be produced most efficiently within the country (not relative to other countries prices)

• Often the “choice” seemed to be a primary product

• Always talked about at the scale of the state, ignoring internal differences

– Also assumes no mobile capital, full resource utilization, all countries same size, changes do not disturb rest of economy

Comparative Advantage Problems

• One of the reasons Neo-Classical was so appealing in the Post WWII era was its optimism, that no matter what a country was best prepared to produce, it too could develop given time and opportunity to trade

– This was better than the pessimism of colonists, who thought nothing could be done

• Problem: It was thought what was being produced around WWII was what states had a comparative advantage in

– Cocoa in Ghana, Rubber in Malaysia were non-native products chosen by colonists (and not necessarily wisely)

– India once exported textiles

• Britain did early ISI, dumped Indian textiles in Europe (hurting their industries)

• Later tariffs for Indian products were extended throughout Europe, making them expensive and forcing out producers

– Indian producers moved to raw cotton, only thing they could still sell

• Now most trade theorists recognize comparative advantage not “natural, but is created, often by external factors, governments, as well as businesses themselves

– While trade helps all, helps the rich industrial & high end service sectors more, meaning increasing income gaps

Critiques and Counter-measures

• Opponents do not like that these organizations take away sovereignty from countries (either by removing protections, letting outside experts control policy, or devolving administration to local authorities) and effectively give it to corporations

– Country’s representatives rarely voted for directly (or for Davos, not at all)

– Also want trade deals to be for “fair” not just free trade where workers and environment protected

• Since Seattle protest, debt relief, empowering women and fighting disease (esp. in Africa) has taken on increasing importance in these institutions

– Also rich people like Gates are stepping up, giving wealth to those with the least of it

Critique (cont.)

• Also, environmental, labor, and human rights groups are getting increasingly organized across borders

– Alliances form around issues, more networked than hierarchical

– However, expectations for accountability & professionalization hurt the smaller groups

• Central to a lot of these movements, and academic critiques of the process, are ideas that are counter to those of most development practice as it has been done, including:

– That so far the combo of development and neoliberalism has certainly helped some and reduced some corruption, but it has not even won the battle it chose to fight, the fight to end economic poverty

– There is more than one path to development, and more than one set of ideas that are valid

• Experts should share, not dictate

– Development should be about happiness and well-being, not just GDP

– Not everything can or needs to be commodified, and those things that can’t need to be nourished too

• Luckily, as the book now says, development workers can and do learn