Lecture 2: Development Theory and Political Economy

Question 1

What are the 2 types of theories when it comes to development?

Answer 1

• Modernization theory
• Dependency theory

Question 2

What does the modernization theory entail?

Answer 2

• There is a linear and rational path to development which is based on Western cultural values such as positivism and science
• In this theory, Capitalism and the free-market are seen as the creative forces responsible for the development
• Liberal economic basic outlook – trickle-down theory

Question 3

why has the modernisation theory been revised and by who?

Answer 3

Samuel Huntington

• Not all good things go together
• Economic development can emerge under authoritarian rule
• Modernization can lead to distortion and chaos but once institutions are restored stability will increase
  however, in order to achieve that social structures and strong government are important needed.

Question 4

what is the dependency theory?

Answer 4

• Capitalist system does not allow for development in poor parts of the world. in this case they are seen as suppressers. in this theory Economic subservience leads to political subservience
  The World system is divided between Core, Semi-periphery and periphery:
• • the core is the developed world (past colonial powers). They export good to the semi- periphery and periphery. And those parts of the world bring resources to the core.
• This theory is a little Marxist because capitalism is viewed as the bad guys.

Question 5

Why is the dependency theory revised and by whom?

Answer 5

Fernando Henrique Cardoso
because a lot of countries did develop.
- Associated-dependent development
- gov Intervention linked to MNCs makes development happen.
- Problem: potential widening of the income gap & upholding repressive regimes.
- Modernization and dependency together

Question 6

what 4 types of ways can the state play role in development

Answer 6

command economy, Latin American Statism, East Asia’s Development state and Neo-Liberal State

Question 7

what is a command economy?

Answer 7

Marxism is a theory where the state takes control over means of production and state planners make decisions governing production. Led by very strong ideology. in this ideology, they believe that capitalism doesn’t work because workers are being exploited and thats why the state must intervene. There is 5 years plan that states what will be produced and how the production will take place. The private sector is very limited in such an economy. There is no look at consumer demand.

You need a very honest bureaucracy in order for such a system to work.

Question 8

What is the Latin American Statism?

Answer 8

most economic activity in hands of the private sector, but the state owns strategically important enterprises and invests in industries. They gave contracts to the private sector and there was interaction between state-owned and privately owned. This part of the world decolonized a lot early compared to the rest of the world. The good: there is growth in the middle class
- The problem: there is widening gap at the same in between the haves and don’t have especially in rural areas.

Question 9

what is East Asia’s Development State?

Answer 9

private sector controls most of the economy, the public sector is small. However, government intervention in key sectors (energy self-sufficient, export, competitiveness).

Question 10

what is a Neo-liberal state?

Answer 10

very limited role for government. Free market forces should determine production and decisions. There is a lot of development, but it also created a widening gap.

Question 11

what is Import Substituting industrialization (ISI)?

Answer 11

• Started in Latin America as a response to the crisis in the 1930S: LA countries started industrializing themselves
• Quotas and tariffs were imposed on foreign consumer goods to protect emerging industrialization at home.
• Local industries could import their capital goods, such as machinery cheaply because the national currency was overvalued.
• Industrial development was also supported by providing low-interest loans …..
• ISI was initially successful but it undermined Latin American economies.
• Export taxes and overvalued currencies put primary good exporters at a comparative disadvantage
• A local capital goods industry was never developed because industries could import these cheaply.

Question 12

what is Export Oriented Industrialization (EOI) ?

Answer 12

• East Asia began with ISI but soon diversified into manufacturing for export (unprecedented world trade)
• Outward-oriented growth and their main goal= producing for exports
• However, economic opportunities in EA are more limited than in LA
• They also have smaller population, less agricultural goods or raw materials
• The success story of Japan and Asian Tigers, NIC’s (Singapore, SK, Taiwan, HK) is the Production of light industrial products.

Question 13

what does growth with equity entail?

Answer 13

in this case, you want to make sure that everyone can take advantage of the development. -
- Agrarian structure and land ownership
- Rural and urban living standards
- Government policies and structure
- Industrialization

Question 14

what role does globalisation play?

Answer 14

• Economic consequences for developing countries
  – stimulation or detriment?
• Link to poverty and income (in)equality
• Modernization and dependency theories