Understanding Development Economics

Its Challenge to Development Studies

Adam Fforde

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9780415869829
• eBook ISBN: 9781134711437
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Important parts of development practice, especially in key institutions such as the World Bank, are dominated by economists. In contrast, Development Studies is largely based upon multidisciplinary work in which anthropologists, human geographers, sociologists, and others play important roles. Hence, a tension has arisen between the claims made by Development Economics to be a scientific, measurable discipline prone to wide usage of mathematical modelling, and the more discursive, practice based approach favoured by Development Studies.

The aim of this book is to show how the two disciplines have interacted, as well as how they differ. This is crucial in forming an understanding of development work, and to thinking about why policy recommendations can often lead to severe and continuing problems in developing countries.

This book introduces Development Economics to those coming from two different but linked perspectives; economists and students of development who are not economists. In both explaining and critiquing Development Economics, the book is able to suggest the implications of these findings for Development Studies, and more broadly, for development policy and its outcomes.

Part I

Development economics

Theory and its application

1Ways to cope with
development economics

In this chapter, I initiate a discussion about core questions that arise in dealing with development economics (DE) and offer possible answers. Central to this is the exercise of critical judgment, which requires a discussion of basics. Chapter 5 gives concrete references with which students may systematically develop ways of coping with DE as a body of knowledge. I am addressing issues of intentionality and agency—how people and institutions get involved in development. A central underlying issue is how far it is reasonable to believe that something that can be modeled with algebra can be driven by conscious intent.

This chapter starts a number of conceptual themes that I will develop throughout the book and are central to coping with the subject of DE. I view development conceptually as both something that happens and something that is done, with tensions between these aspects fundamental to under standing. I will contrast standard views of the problem of development (Box 1.1) with an alternative that grapples directly with these tensions (Fforde 2009). Adopting such conceptualizations is aimed at developing a discussion that allows treatment of ideas as well as historical processes, something at which DE is singularly bad. Including discussion of ideas and history facilitates discussion of ideas that consider development as some thing that is done, by various possible actors, as well as something that happens, which can be modeled with algebra.

I start by looking at development as an issue, taking as an example globalization and underdevelopment. This approach points to how discussions of underdevelopment usually refer both to what to do about it (possible actions) as well as how things are (reality). This raises the question of intentionality and specifically whether to follow the mainstream and think of development as a problem to which there are knowable solutions. I then discuss the issue of actors—those who “do” development—in the sense that development does not just happen. The two opposing tensions within ideas of development pose the puzzle of how a historical process that is said to be modelable with algebra (as in the growth economics that is central to DE and discussed in Chapters 7 and 8) can also be said to be doable. This leads to a discussion of how DE conceptualizes policy and how development is done, which turns out to be not quite as simple as it may appear.

Box 1.1 The problem of development

Many DS students will be aware of discussions of issues that arise from the problem of intentionality in thinking about change. One can argue that development is different from progress because it contains the notion of intentionality—development is something that can be “done.” If so, some agency is required to host this intentionality.

A good example is an aid project, which, one can read in its documentation, is expected to do something—to effect certain changes in certain ways. But if these changes follow some logic, which can be and should be known beforehand, then what is the exact meaning of this intentionality? A tree grows according to some natural science logic; there is no “intention” in the same way as the farmer’s intention to plant that tree, hoping, say, to build a house for his son when he marries. Once intention is included, then so do issues of values, ethics, and other factors that suggest that development should be done in certain ways. These very human themes do not sit easily beside the idea that development follows certain knowable logics or laws.

I discuss these issues further in Chapter 2, but here readers should be alerted to the deep issues underlying choices about how they choose to understand and define the “problem of development. Arndt (1981) was, as an economist, one of the first to point out the way in which the term to develop was used both transitively and intransitively. (See also Cowen and Shenton 1996 and Fforde 2009.)

Development as an issue: globalization and underdevelopment

Globalization: situation and problem

Most readers will be well aware of strong debates about the nature and impact of globalization.¹ Mainstream DE tends to support it, while much development studies (DS) does not. The concept is contested and arouses strong feelings.

These debates were further intensified by two major crises—the Asian Financial Crisis (AFC) of the late 1990s and the Global Financial Crisis (GFC) that started in 2008. Readers familiar with these debates will be well aware of the many definitions of globalization, many evaluations of its consequences, and, at the very least, that its fruits cannot easily be said to be have been shared equally, either within or among countries. Some readers may sense that such debates are in many ways old and may be related to the lack of agreement over important change processes. An aspect of global change processes, globalization is not only associated with development and underdevelopment, but many view it as a frequent cause of poverty.

Some commentators link these issues directly to apparent tensions in the global economy, such as the macroeconomic imbalances gauged by pervasive patterns of current account deficits and surpluses, and fiscal surpluses and deficits. In Chapter 23, students who work through the Question for Discussion will see how National Income Accounting (NIA) principles reveal that these imbalances are definitionally interrelated.² Globally, all current account positions must sum to zero, and the obverse of a current account surplus—a capital account deficit—must in accounting terms be the same thing (but measured from a different perspective) as net domestic savings. Those unfamiliar with the accounting systems behind these numbers may find this surprising. Further, the analytical value of such definitional equalities that help us think about relationships between things that at first sight appear to be unrelated (such as the US fiscal deficit and Chinese household savings patterns) is something that students may meet again when they reconsider NIA in Chapter 23.

A further aspect of the discussion is the possibility of relationships between globalization and crises, of which the AFC and GFC are examples. Since crises are inherently unpredictable, the question may be asked: do these events suggest that a process such as globalization has made the world riskier and more mysterious? And, if there are uninsurable (as unpredictable) risks, what are the consequences? If it is authority—statements that “this is the way the world is”—that underpins ways of responding to ignorance, what happens if dominant authority is challenged and loses prestige?

Consider the comments from the Financial Times journalist Martin Wolf, writing in 2009:

First, we are seeing at least the beginning of the end not just of an illusory “unipolar moment” for the US, but of western supremacy, in general, and of Anglo–American power, in particular. The UK was the only power with global reach in the 19th century. The US held the same role in the second half of the 20th. The transition between these two eras was a catastrophe. Now we have a possibly even more difficult transition of power to manage.

Second, the west, in general, and the US, in particular, have suffered a disastrous loss of authority. Assertion of an unchecked right to intervene destroyed trust in the US. The chaos that followed the wars in Iraq and Afghanistan and, far more, the financial crisis have destroyed the west’s reputation for competence. The rest of the world was inclined to believe that the west, whatever its faults, knew what it was doing, particularly where running a market economy was concerned. But then the teacher failed the examination.

Third, globalization has also fallen into difficulty. Thirty years of surging growth in private sector leverage, in the balance sheets of the financial sector and in notional profitability of the financial sector in the US and other high-income countries has ended in calamity. The emergence of massive global current account “imbalances” has proved highly destabilising. Friction over exchange rates threatens even the maintenance of liberal trade.

Fourth, the provision of basic global public goods now demands cooperation between the established powers and emerging countries. This was shown in the inability to complete the Doha round of multilateral trade negotiations; in the rising influence of the Group of 20 leading countries and the parallel decline of the Group of Seven high-income countries during the financial crisis; and in the centrality of China, the world’s leading emitter of greenhouse gases, in the climate change negotiations in Copenhagen.

Yet, quite rightly, the world also demands the provision of far more public goods than a century ago. Then a modicum of peace, monetary stability and open markets was all that was expected. Now the world demands that leaders not only sustain peace and prosperity, but also promote development and environmental sustainability. All this is to be achieved via co-operation among some 200 states of vastly different capacities. Meanwhile, a host of non-state actors, some benign and many malign, impose conflicting pressures. Sometimes, they subvert states entirely.

The Financial Times is not a left-wing newspaper. Such analyses offer powerful arguments that contextualize economic problems, especially historically and politically. They suggest that economic matters might well be the effects of wider issues. Economic order and progress, in such views, rely upon various preconditions. Central to these are authoritative views of why and how things are as they are, without which the world must be seen as risky and unpredictable. And Wolf’s point is that authority can be both won and lost.

Consider also a speech by the outgoing managing director of the Inter national Monetary Fund (IMF), Michel Camdessus, after the AFC. He argues that globalization has seen the arrival of a new breed of economic crises, with “the prominence of the private sector—financial institutions and corporations—on both sides of the equation as creditors and debtors.” His analysis links this situation to the weaknesses of the global financial system itself, in that global politics cannot stop crises from occurring and cannot cope with them when they do happen, as is occurring with increasing frequency. Recall that he is referring to the AFC, which happened about a decade before the GFC. He says:

The task is certainly monumental. We are the first generation in history to be called upon to organize and manage the world, not from a position of power such as Alexander’s or Caesar’s or the Allies’ at the end of World War II, but through a recognition of the universal responsibilities

of all peoples, of the equal right to sustainable development, and of a universal duty of solidarity.

(Camdessus 1999)

If such men are fearful, then it seems reasonable to seriously consients that globalization is not only problematic but capable of threatening global order.³

Poverty and underdevelopment: the context of DE

There is, as we can readily see if we want to, much poverty, unhappiness, and inequity in the world—more in some countries than in others. The developed world enjoys much, materially and spiritually, while the rest of the world does not. It is evident that some people think that something should be done about this, and it is said—especially by economists—that much of the problem is economic. If this view is accepted, the natural expectation is for DE to offer solutions for what to do, how to solve the problem, and how to build the bridge—that is, to argue that there is a problem of development, mainly economic, to which there is a known and reliable solution even if people may argue over the precise details of exactly what this is. Yet, in many instances, the solution is not readily apparent.

Ha-Joon Chang’s Kicking Away the Ladder: Development Strategy in Historical Perspective (2002) is a short and accessible comparison of the development paths of today’s developed regions with those recommended to today’s poor. Chang argues that the policies and institutions of today’s developed countries did not exist when they themselves were developing, and so are better seen not as suited to historical tasks of development but as the results of successful development. This does not fit easily with ideas that development is about known problems with known solutions. Reference may be made to such historical issues as the high levels of import tariffs in the US during the nineteenth century, the lack of democracy throughout Europe at the same time, and frequent high levels of corruption (such as in the US in the decades prior to World War I). In these situations historical accounts of the causes of change often differ vastly from what is now prescribed.

A search of the available literature shows that DE (unlike accepted predictive knowledge, such as, say, civil engineering) exhibits a persistent instability of positions both over time and between contexts. Thus Lindauer and Pritchett (2002) (“What’s the Big Idea? The Third Generation of Policies for Economic Growth”) offers a believable account of shifts in economists’ views over the past three generations and relates this instability to changing social and historical contexts.⁴ My point here is that a student of DE has to cope with this instability—with a literature full of arguments rather than one offering known and stable solutions. The argument is sometimes made that this disagreement amounts to a pattern of progress, as mistakes are replaced; we will consider this view. But Lindauer and Pritchett (henceforth L&P) argue that it is context—not progress—that explains mainstream views. I discuss this further later.

Meanwhile, out there in the world, inequality and unfairness remain. Some people (far from all) seem to do better, while others do worse; some who had been doing better now do not, while some seem mired in difficulties. This suggests that we do not yet know how to build the bridge. But a reader will find many aid programs, development strategies, and so forth th...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Abbreviations
• Preface
• Part I Development economics: theory and its application
• Part II Topics and issues
• List of special terms
• References
• Index