Transcript Global Development

Global Development
Max Weber
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Protestant work
ethic
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Are poor people just
lazy or stupid?
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Are some cultures
not compatible with
economic success?
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The conditions many in poverty
live in force them to behave
differently, yet still rationally.
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Poor are risk adverse
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Poor discount the future
Institutions
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Weber right in regards to institutionalization such
as bureaucracy.
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Institutions are the rules of the game.
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Private property, free market principals,
bureaucracy, democracy
So why do we have bad
institutions?
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Self-Reinforcing
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Colonial Legacies
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Path Dependence
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Settlement and
Institutionalization
Conquest and
Extraction
Conditions for Colonization
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Colonial Objective
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Types of Settlers
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Natural Resources
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Suitability of Environment
Latin America
Primary
Commodities
VS
United States
Manufactured
Goods
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Declining
Terms of Trade
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As World gets
wealthier consumption
of finished
(manufactured) goods
increases greatly.
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Demand for primary
goods does not keep
pace, and varies
greatly over time.
Bananas vs Oil
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What about more expensive commodities?
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Oil, Gold, Diamonds
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Such resources can be a curse.
No Taxation Without
Representation
Resource Curse
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The need to generate revenue
creates the need to tax
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Taxation creates demands from
taxed
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Taxation takes massive
bureaucracy
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Industry and
manufacturing need
massive amounts of
labor and training
Extraction takes
minimal labor and
human capital
(education and
training)
Saudi Arabia
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Gallup Poll: 71% Say public
sector jobs more stable.
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Height of Arab Spring $10
Billion placed into
development fund
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In 2015 $32 Billion given to
average citizens (mostly
government jobs)
Import Substitution
Industrialization
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Problem: Need to industrialize
but but can't compete
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Answer: Establish trade
barriers (tariffs and quotas) to
foster domestic industrial
development
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Problem: Need massive
amounts of capital to build
expensive industry
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Answer: Borrow it
Brazilian Miracle
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1968 -1980
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10% Average GDP
Annual Growth
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Infant mortality 140 to 95
Export Oriented
Industrialization
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Pick a few key industries (steel,
automotive, electronics)
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Support industries with massive
subsidies (government
payments), cheap credit and
trade barriers
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Leave rest of economy open
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Need technocratic government
bureaucracy to be able to
effectively pick and help key
industries
East Asian Miracle
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1962 - 1989 South Korean
GDP grew by an average of
8%
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Companies like Samsung,
LG, Hyundai, Kia
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11th biggest economy and
27th richest (Brazil 7th
biggest but 77th richest)
Is it Repeatable?
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Asian Tigers mostly homogenous societies
with major external threat.
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High levels of foreign aide due to security .
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Few natural resources
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Can countries succeed like this in today's
globalize economy?
Latin American Debt Crisis
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Oil prices sky rocket
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OPEC countries loan out
their new cash windfall
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As recession continues debt
becomes untenable
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Massive devaluation of
currency and inflation
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1982-1985 -9% GDP Per
Capita growth
Asian Financial Crisis
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Hot money (Over-investment in East Asia)
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Cheap credit in East Asian economies
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Asset prices sky rocket
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Strong Dollar hurt exporters pegged to US
currency
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China as a new competitor
International Monetary Fund
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Bretton Woods Conference (1944)
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Maintained balance of payments to
facilitate stable exchange rates.
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Mission changed to being lender of
last resort
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Requires conditionality (reforms) on
loans.
Neo-Liberal Reform
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Washington Consensus
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Free trade, free market, deregulation,
privatization, lower tax rates, focus on fighting
inflation
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Failures: Asian Financial Crisis (1997), Global
Financial Crisis (2008)
Foreign Aide
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Big Push (Jeffrey Sachs)
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Moral Hazard
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Inefficiencies
Millennium Project (UN)
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All 189 Member states joined in 2000
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September of 2000 initiated Millennium
Developmental goals to be achieved by 2015
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Results uneven
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Worked with World Bank and IMF to forgive debt
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Provide programs to improve health and
education and alleviate poverty
Millennium Project (UN)
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To eradicate extreme poverty and hunger
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To achieve universal primary education
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To promote gender equality and empower women
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To reduce child mortality
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To improve maternal health
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To combat HIV/AIDS, malaria, and other diseases
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To ensure environmental sustainability[1]
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To develop a global partnership for development[2]
Inefficiencies
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Fundraising: What causes
get the most attention?
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Who Gets What: Logistics
and costs do not always
lead to correct solutions
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Top down approach
focuses on donor goals and
broad objectives, not
developmental success
Private Property and MicroFinance
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Private property makes
individuals value the future.
Generates investment.
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Problem: Poorest do not have
as much access to such rights
and have even less access to
credit.
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Microfinance: Loans as little as
$25 can allow for significant
improvements to business and
health.