Transcript Development Prospects

Development Prospects
Bright Outlook
Smith:
• Virtuous circle of growth
Schumpeter
• Creative destruction
Dim Outlook
Ricardo
• Diminishing
Marx
Returns
Contradictions
Declining Profit
Lenin
Free Trade
Imperialism
Vicious Circles
Myrdal
Prebisch
Triumphalism
• Washington Consensus
Market Fundamentalism
• North, Wallis, Weingast
Limited Access
? Open Access
Cumulative
Causation
Poverty Trap
Primary Goods
Trap
ISI
Rajan: Rent Preservation
Polanyi: Unnatural Market
Gunnar Myrdal
Cumulative Causation
Conventional Equilibrium Approach
“Harmony of Interests”
Laissez – faire
Free Trade
Myrdal’s Critique of Equilibrium Approach
• The “other things” that are assumed to remain equal –
particularly social and political relations – change with
economic outcomes.
• They change in ways that lead to divergence, not
equilibrium.
Thems that gots gits.
Gunnar Myrdal
Cumulative Causation
• “Spread Effects”
• Peripheral regions supply the dynamic center
• “Backwash Effects”
• Dynamic regions suck the best resources from the
backwater
• Free trade and free migration hurt the periphery
Thems that gots gits.
Raul Prebisch – Hans Singer
UNECLA
• Primary goods trap
Development  increased demand for manufactured
goods
• Demands for primary goods are income inelastic
Primary goods prices fall relative to manufactured
goods prices over time
Terms of trade move against primary good exporters
Prescription:
Import Substitution Industrialization (ISI)
Mantra of the 1990s:
Washington consensus – Market Fundamentalism:
1. Fiscal policy discipline
2. Redirect public spending away from subsidies/toward pro-growth,
pro-poor services (education, health, infrastructure)
3. Tax reform: broaden tax base/ moderate marginal tax rates
4. Market determined interest rates: positive (but moderate) real rates
5. Competitive exchange rates: neither fixed nor free-floating
6. Liberalize trade
7. Facilitate foreign direct investment
8. Privatize state enterprises
9. Deregulate… except oversight of financial institutions
10. Assure legal security for property rights.
Hernando de Soto:
The test is, can the system work for the majority of the people?
…this is capitalism's testing moment. This has happened before. In Latin
America, we found that in at least five opportunities, all our countries
since the 1820s [have] actually tried to follow the U.S. model or the
Western model. We've privatized railways and we have lowered our
tariffs to zero and we've opened ourselves up to foreign investment, and
five times we've had to go back because it made sense for a very small
[group] of people at the top of the pyramid, but for the majority it
didn't work.
So our thesis is, basically, the reason it doesn't work for the majority is
because the system can only work with property rights. Markets and
capitalism are about trading property rights. It's about building capital
or loans on property rights. What we've forgotten, because we've never
examined the poor, we've sort of thought that the poor were a cultural
problem, is that the poor don't have property rights. They have things,
but not the rights.
And when you don't have the rights…
Karl Polanyi
The Great Transformation
• Market Economy is Historically Rare
• Laissez Faire is Unnatural
– Enforced by Strong, Oppressive State
• Resistance to Market is Natural
– Reaction to Liberalism … Welfare State
– Social Protection vs “Self – Regulating” Market