Unit 1- development and underdevelopment theories

Question 1

Modernization theory

Answer 1

• first and most widely accepted theory
• Central question: Does the development of the less developed world follow the same historical trajectory as the West?
• Intellectual origins: sociologist Max Weber (German sociologist, philosopher, jurist, and political economist)
• Max Weber viewed economic development and social change as a function of people’s ideas, culture, and beliefs, rather than social relations and historical context.
• he did not believe capitalism was inevitable everywhere
• his ideas were very popular in the US following WW2

Question 2

Modernization theory- Talcott Parsons version

Answer 2

The American version–> modern = western
- denying the possibility of modern, non-western cultures
- Parsonian modernization theory explicitly advocated capitalism as the best path any country can chose as it was written the Cold War
- capitalism is the only way to modernity, wealth and democracy
- If LDCs adopt Western values, market relations and government institutions they’ll become developed societies –> the path from traditional to modern is unidirectional
- Rich industrial countries = modern –> poor countries must undergo the modernization process to acquire these traits
- the LDCs will eventually achieve the same prosperity when they give up the traditions that keep them trapped in an irrational past

Question 3

Important aspects of the modernization theory

Answer 3

• advocated stability and gradual change, not revolutionary leaps
• capitalism is inevitable worldwide (Weber meant it was a unique situation in Europe)
• economic development occurred through a series of stages –> the labor force is employed first in agriculture, then manufacturing and then services
• advocates free trade
• poverty is the result of the incomplete formation and diffusion of the markets
• the rural areas must catch up with the cities like the LDC must catch up with the developed world
• population growth must be controlled
• growing middle class to protect civil liberties

Question 4

Modernization theory- Walter Rostow

Answer 4

• Walter Rostow (1916-2003), american economist and policy advisor in the
  1960s, proposed a famous five-stage model of development.
• His model likened economic growth to an airplane taking off.

Question 5

Rostow´s five stages

Answer 5

1) Traditional society
2) Preconditions for take-off
3) The take-off
4) The drive to maturity
5) The age of mass consumption

Question 6

Stage 1- traditional society

Answer 6

-Has no started the process of development -High % of people in primary sectors
-High % of wealth in non productive activities such as the military and religion

Question 7

Stage 2- preconditions for take-off

Answer 7

-Under international trade: an elite group (well- educated leaders) initiates innovatives economic activities: exploitation of agriculture and extractive industry.
-Investment in new technology and infrastructure (water supply, transportation systems…) –> increase in productivity

Question 8

Stage 3- the take-off

Answer 8

-Development of manufacturing sector: few industries achieve technical advances
- Rapid growth is generated in a limited number of economic activities, such as textiles or food production
-Other sectors remaning in traditional practices

Question 9

Stage 4- the drive to maturity

Answer 9

-Development of wider industrial and commercial base
- Modern technology diffuses to a wide variety of industries, more skilled labor force

Question 10

Stage 5- The age of mass consumption

Answer 10

-Shift from production of heavy industry (steel, energy) to consumer goods (cars,tvs,computers)

Question 11

Policy implications of the modernization theory

Answer 11

• Advocates the formation of unrestricted markets, thus barriers to trade and investment should be removed.
• Foreign capital in the form of multinational corporations should be welcome.
• Urban development should be promoted at the expenses of rural areas.
• More recently: used to justify neoliberal structural adjustment policies of the IMF, including currency devaluations and reduction in government subsidies

Question 12

Critics on the modernization theory

Answer 12

• Ethnocentric: history of the West an ideal to be imitated, everyone else’s culture is inferior.
• Simplistic and unidimensional view of history only in the experience of the West
• LDCs: backwards versions of the West, not unique entities with their own cultures and histories
• Not considering the impact of hundreds of year of colonialism
• Uncritically celebrates markets as a mechanism producing only wealth, not poverty- it ignores the costs of capital development
• Focuses only on the internal dynamics within countries and ignores the external context - ends up blaming the victims

Question 13

The dependency theory

Answer 13

• Scholars from the developing world – Latin America- started questioning the modernization theory
• Competitive advantage and interdependence to Western scholars = exploitation to many in the LDCs
• Development of the core countries is intrinsically dependent on the underdevelopment of the periphery countries
• Unequal development of the world economy stems directly from the historical experience of colonialism
• The development of Europe and North America depended on the systematic exploitation of underdeveloped areas.
• Underdevelopment is not a state but an active process- this process is described as “development of underdevelopment”
• the LDCs were made poor by the west- uneven exchange
• LDCs produce low valued goods in the primary sector and purchase high valued goods from the core
• focuses on external, not internal, causes of poverty
• LDCs do not temporarily “lag” behind the West but are mired in poverty produced by the West
• the wealth of the developed countries is derived from the labor and resources of the LDCs
• Markets dont eradicate uneven development (modernization theory), it perpetuates it –> “the zero-sum game”, development and underdevelopment are two sides of the same coin –> development somewhere requires underdevelopment somewhere else
• independent development is impossible
• Core vs periphery concepts.

Question 14

Policy implications of the dependency theory

Answer 14

• Self-reliance: countries should exclude transnational corporations
• Countries should implement import substitution to promote domestic production
• Some people advocate defaulting on foreign debt

Question 15

Critics to the dependency theory

Answer 15

• It tends to view the global periphery as passive and incapable of taking actions.
• All LDCs victims of capitalism to the same degree.
• It ignores internal causes of poverty (ie. Rural aristocracies)
• Simplistic: does not offer adequate account of technological change and productivity growth.
• Example: East Asian NICs showed that development on the global periphery is indeed possible and capitalism does not automatically antically reduce all LDCs to impoverished states

Question 16

The World-Systems Theory

Answer 16

• Allows for some mobility within the capitalist world economy compared to the dependency theory
• Started by sociologist Inmanuel Wallerstein (NY, USA, 1930-2019)
• The forces driving the world economy are in permanent spatial disequilibrium.
• Focus on the entire world rather than the individual nation-states
• can’t study the internal dynamics of countries without also examining the external ones –> the boundary between foreign and domestic disappears
• Pre-capitalist world empires ≠ capitalist world system.
• Under global capitalism there is a single market but multiple political centers
  → No effective control over the market → nation state vs. interstate system.
• Maintains that capitalism takes many forms and uses labor in different ways in different regions: It is the search for profits through low-cost labor that drives the world system forward to expand into unexplored territories.
• The core, the periphery and the semi-periphery
• The semi-periphery has characteristics of both- includes states at the upper tier of the LDCs such as NICs, Brazil, Mexico and Saudi Arabia

Question 17

The semi-periphery countries

Answer 17

Exploited by the core countries with regard to raw materials and product flow while at the same time exploiting periphery countries

Question 18

World system theory- the hegemony

Answer 18

• Assumes a world hegemonic power: the hegemon “sets the rule of the game” → dominates the global political and economic system.
• Hegemony exists when one core power enjoys supremacy in production, commerce, and finance and have a position of political leadership → hegemonic situations: periods of peace.
• The hegemonic power owns and control the largest share of the world ́s production apparatus → relies on economic mechanisms to extract the surplus value of the periphery.
• because of political and military superiority the dominant core country maintains order in the world system and imposes solutions to internal conflicts that serve its self-interests
• when powers in the core has conflicts among themselves they open opportunities both for new hegemony and for countries on the periphery
• Competing core countries rely on the mechanism of colonialism to extract the surplus of the periphery.
• During a power ́s fall from hegemony, rival core states, which can focus on capital accumulation without the burden of maintaining the political and military apparatus of supremacy, catch up and challenge the hegemonic power.
• periodic fluctuation from a single, hegemonic power to a group of competing countries are essential to the survival of the world system

Question 19

Regional inequalities within developing countries are..

Answer 19

reflections of social inequalities because economic landscapes are produced by social relations

Question 20

What has an absolute negative effect on the growth rate and development of the periphery?

Answer 20

• capital movements
• trade flows
• internal migration
• institutional controls

Question 21

The center-periphery concept

Answer 21

The center appropriates to itself the surplus of the periphery for its own development

At a world level: The global center (rich industrialized countries) drains the global periphery (underdeveloped countries)

Question 22

Three methods for developed countries to help LDCs:

Answer 22

1) Expand trade with LDCs
2) Invest private capital in the LDCs
3) Provide foreign aid to the LDCs

Question 23

1) Expand trade with LDCs

Answer 23

• reducing tariffs and barriers will improve the situation somewhat- like Mexico with NAFTA
• However increasing trade means the LDCs must produce something to export
• also, the LDCs are often tied economically to the developed nation they have a trade relation with

Question 24

Invest private capital in the LDCs

Answer 24

• since the debt crisis in 1980s and 90s the investment and private capital flows have decreased
• often they have to pledge a financial return + guarantee that a politically stable environment will prevail
• an international trade climate must also be provided- financial and marketing systems, favorable tax rate, maintenance of infrastructure and some measurement of reliable labor flow

Question 25

Provide foreign aid to the LDCs

Answer 25

• to retool the workplace, increase productivity and retrain the labor pool
• improve infrastructure
• for many countries in Africa aid can form 15% of their national output
• less than 1% of US GDP goes to foreign aid
• most US aid come with purchase requirements
• almost 75% of US foreign aid is military in nature and goes to allies such as Israel, Egypt and Turkey
• distributed on the basis of political ties and not economic needs
• developed countries contributions amount to only 0.5% of their collective GDPs

Question 26

Industrialization in the developing world

Answer 26

• deindustrialization in the developed world did not induce widespread industrialization in the developing world
• in 2000, 40 countries accounted for 70% of manufacturing exports from developing countries - the top 15 for about 60%
• 1/3 of all exports came from Hong Kong, South Korea, Singapore and Taiwan (the original “tigers” of the East Asian miracle)
• most undeveloped countries saw zero or very little manufacturing growth –> industrialization occurred in only selected parts of the developing world

Question 27

Two groups of exporters

Answer 27

1) Countries such as Mexico, Brazil, Argentina and India- large domestic industrial base and established infrastructure. Export primarily traditional manufactured goods such as furniture, textiles, leather and footwear.

2) Countries such as Hong Kong. Taiwan, Singapore and South Korea have few natural resources and small domestic markets. By tailoring their industrial bases to the worlds economic needs they have become successful exporters to the developed world–> clothing, engineering, metal products and light manufactures. (export-led industrialization)

Question 28

Import-substitution industrialization

Answer 28

• Post ww2 period- newly independent developing countries wanted to break from their dependence on developed countries
• this strategy involved the production of domestic manufactured goods to replace imports
• only the middle classes could support a domestic market –> focused on luxuries and consumer durables
• increased regional inequalities
• local entrepreneurs didn’t have capital or technology- foreign mnc´s came to rescue
• independent development became dependent industrialization

Question 29

Export-led industrialization

Answer 29

• by the 1960s it was apparent to many leaders that import-substitution had failed
• once again LDC development became strongly linked to the external market
• Before: linked to export of primary commodities
• Now: linked to production and export of manufactured goods
• the growth of export-led industrialization coincided with the economic crisis of the 70s and 80s

Question 30

4 conditions of export-processing zones

Answer 30

1) Import provisions are made for goods used in the production of items for duty-free export, and export duties are waived. No foreign exchange control and freedom to repatriate profits.

2) Infrastructure, utilities, factory space and warehousing are usually provided at subsidized rates

3) Tax holidays, usually of 5 years, are offered

4) Abundant, disciplined labor is provided at low wager rates

Question 31

Export processing zones

Answer 31

• first one in Shannon, Ireland in 1958
• Taiwan 1965
• 1975- 31 zones in 18 countries
• early 1980s- 68 zones in 40 countries (Caribbean, Central and Latin America, and Asia)

Question 32

International subcontracting/ offshore assembly and outsourcing

Answer 32

MNCs establishing operating systems between locally owned companies and foreign-owned companies

Question 33

Consequences of export-led industrialization for women

Answer 33

• much of the employment in export-processing zones is in electronics, electrical assembly or textiles- young, unmarried woman make up the largest workforce in these industries
• woman are paid less for the same job
• labor that violate their traditional customs and codes- may be rejected by their clan

Question 34

The East Asian Economic Miracle

Answer 34

• Hong Kong, Singapore, Taiwan and South Korea –> followed the Japanese path
• In the 80s and 90s- Malaysia, Thailand, Indonesia and the Pacific coast of China followed
• South Korea increased their GDP x 18 from mid 60s to 93 –> morning 70% of workers from rice farmers to urban areas –> is now the 11th biggest economy

Question 35

Characteristics of the countries in the East Asian economic miracle

Answer 35

1) Commitment to education
2) High national savings
3) A strong political framework within which economic growth is fostered- that they had a Laissed-faire model is a common, but not true myth of the NICs
4) Engaged in widespread landreform in the 1950s- different from Latin America
5) East Asian NIC countries exhibited a sustained commitment to exports (export-led industrialization)
6) Japanese foreign investment in East Asia + many countries benefited from the Japanese occupation between 1895 and 1945 (initiated industries, infrastructure, centralization ++)
7) US foreign aid - The Truman Doctrine against communism

Question 36

China

Answer 36

• opened itself to world economy in the late 70s
• policies implemented in the 80s revolutionized the economy and society of the most populous countries in the world
• encouraging private property and markets
• welcomed the west
• the economy has grown an average of 8% annually for the last two decades
• rapid growth along the coast- interior remain in poverty