1 Development strategies over the decades By Frances Stewart.

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Development strategies over the decades

By Frances Stewart

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Aim

• To consider changing development strategies over past half century.

• Is there a logic, or is it just fashion?

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The logic of changing strategies

• Not just a matter of fashion.

• A cyclical rational process – starts with ‘facts’ of situation; gives rise to theories and to new policies; policies affect situation; hence new ‘facts’.

• There is a dialectical or cyclical interaction between events, thought, policies and events.

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The ‘facts’ –starting point

Theories

Policies

Policy impact

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A more complex view

– ‘facts’ not objective; depends on whose lenses are used.

– Interests powerful.

– Development theories borrow heavily from thought in advanced countries, especially because of dominant role of West in advanced education; and in International Financial institutions.

– Theory is very persistent – colours how facts are viewed.

– No single view.

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The ‘facts’ –starting point

Theories

Policies

Policy impact

Interests and politics

Advanced country thinking

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 YEARS

 DOMINANT STRANDS IN DEVELOPED COUNTRYTHINKING

 DOMINANT THEMES IN DEVELOPMENT ECONOMICS

 1950S1960S

 KEYNESIANISM

GROWTH. PLANNING AND INDUSTRIALISATION:Rostow; Lewis; Nurkse

- 1970S

 A. KEYNESIANISM   B. MARXISM  C. NEO-CLASSICAL REVIVAL

MONETARISM AND NEO-CLASSICAL ECON.

A.-EMPLOYMENT; SeersREDIST. WITH GROWTH; Chenery; SingerBASIC NEEDS; Streeten; Stewart; Haq.B. DEPENDENCY; Frank;Furtado -C. PRICES and MARKET:Little,Scott,Scitovsky 

1980S 

 PRO-MARKET AND ANTI-STATE; MONETARISM IN MACRO-POLICY; Balssa; World Bank. NEW POL.ECON. Krueger, Bhagwati

 LATE 1980S-MID 1990S

 NEW THEORIES OF GROWTH AND TRADE; INFORMATIONAL ASYMMETRIES; ALTERNATIVE MOTIVATIONS; INSTITUTIONS

NEW FOCUS ON POVERTY – Cornia,Jolly, StewartHUMAN DEVELOPMENT AND CAPABILITIES; ul Haq; Sen; et al.ROLE OF THE STATE-COMPLEMENTARY TO MARKET; ROLE OF NGOS AND COMMUNITIES.

 MID-90S – Mid 2000s

 THE THIRD WAY; SOCIAL MARKET; ENVIRONMENT

 GLOBALISATIONHUMAN RIGHTS and MDGsA NEW LOOK AT MARKETSENVIRONMENTBACK TO GROWTH

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The ‘reality’ of underdevelopment in the 1950s

• Much in common among developing countries:– Colonial experience.– Heavy reliance on primary products and agriculture, and

low industrialisation.– Low education and literacy. 10% adult literacy .– Poor health - high infant mortality (250/1000; and

maternal mortality ).– Low incomes (one tenth to one twentieth of developed

countries).– Technological dependence.– Low savings/investment (5%).

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Thinking in advanced countries

• Keynesian era. Planning. • Truman, 1949 inauguration speech:

We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. The old imperialism is dead – exploitation for foreign profit has no place in our plans.

• Top down: Escobar (1995): ‘ Development was - and it continues to be for the most part – a top down ethnocentric, and technocratic

approach which treated peoples and cultures as abstract concepts, statistical figures to be moved up and dowin in the charts of “progress”.

• But Helleiner suggests origin was in Bretton Woods negotiations and had support of Latin American governments.

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1950s and 1960s: aiming to industrialise

• Newly independent countries: objective to ‘catch up’ via industrialisation.

• Major emphasis on economic growth (Nurkse; Rostow; Rosenstein-Rodan; Myrdal; Mahalanobis; Lewis; Hirschman).

• On industrialisation via import substitution;• Raising investment; using ‘surplus’ labour. • Thinking ‘Keynesian’, pro-planning. Major role for

government. Controls.• Borrow advanced country technology unmodified.• NB Top down strategy.• General neglect of ‘human’ dimension – thought it would be

looked after automatically through growth.• Strategy supported by foreign advisers (inc. World Bank)

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Consequences: growth did follow; investment rose; plus industrialisation

Growth in per capita incomes 1960-77 %, pa

Industrial share

%

1960 1977

Investment ratio %

1960 1977

Low-income

1.4 17 25 14 21

Mid-income

3.6 32 36 21 25

Industrialised

3.4 40 37 21 22

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But problems

Rising unemployment; high underemployment• Poverty still high and increasing in absolute terms• Dependency remained.• Growth of GNP neglects income distribution, public goods,

employment – all essential for improving quality of life. Unemployment (rapid population growth, slow growth in employment).

• ILO: ‘It has become increasingly evident.. That rapid growth at the national level does not reduce poverty or inequality or provide sufficient productive employment’and

• Dependency – terms of trade (Singer/Prebish); terms of technology transfer (Vaitsos).

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1970sNew thinking; new strategies: 3 critiques

1. Dependencia analysis. E.g. Gunder Frank, Furtado, Amin.

• Need to break free from North; negotiate better terms; become autonomous (mainly thinkers from South).

• Policy consequences– demands for New International Economic

Order; G77– OPEC; and oil price increases– Bargaining on technology transfer – move

away from Foreign Direct Investment.

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1970s: second critique: need for human centred strategies

• Need for human centred strategies.• ‘dethrone’ GNP• Employment expansion – ILO Mission to Colombia• Role of informal sector (ILO Mission to Kenya)• Three aspects: production; recognition; income• Redistribution with Growth (Chenery et al)• Basic Needs (ILO/World Bank)• Sen and capabilities

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Explaining evolution

• But why employment? Employment is a means to achieve various objectives, including incomes, production and recognition

• Hence move to focus on incomes of the poor. Redistribution with growth (RWG).

• Is the strategy feasible technically? Politically?• Is it right to focus on money incomes?

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Defects of focus on money incomes.

• Income distribution critically important• Neglects public goods (and externalities

more generally).• Assumes utilitarian philosophy. But• ‘Physical condition neglect’. Entrenched

deprivation can become acceptable.• Is consequentialist. Neglects agency goals

(how you get there – e.g. child labour).

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Human wellbeing goes beyond money incomes

1. Basic needs approach:• poor need certain basic goods and services. Income a

means. But doesn’t provide public goods. And effectiveness of incomes of households depends on household distribution.

• But how to identify what poor need?• True objective is not consumption of goods and services

(commodity fetishism – Sen), but to lead a decent life.• Metaproduction function of BN approach, translates BN

goods and services into quality of life.E.g. DL = f(a, b, c d….), or Decent life depends on consumption of food, health services,

shelter….

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2. Sen and capabilities

• Goal of development is to enhance people’s potential to be and do.

• Potential beings and doings are capabilities• Actual beings and doings are functionings.• Incomes an important means but capabilities go

well beyond incomes.• Freedom to choose critical – hence capabilities not

functionings.• Approach relevant to rich as well as poor countries

– big advantage compared with BN.

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BASIC NEEDS CAPABILITIES

Disposable money income

Social income

Entitlements

Choices

BN goods and services

Capability set Personal characteristics

BN goods and services

Metaproduction function

Characteristics of goods

Decent life characteristics

Functionings

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Consequences

• Policy consequence: shift in World Bank and donor policies. Not widely accepted by developing countries. Some progress, mainly by countries already following that role. Clash with demand for New International Economic Order.

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Adult literacy rates, %, 1960-2000

0

10

20

30

40

50

60

70

80

90

100

SubSarahanAfrica

S.Asia E.Asia Latin America

lite

rac

y, %

of

ad

ult

po

pu

lati

on

1960

1970

1980

1990

2000

Figure Two

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1970s: third critique

Efficiency critique: market should have a greater role (Western economists; World Bank);

Little, Scitovsky and Scott. Countries with greater role for market had more growth and better distribution.

Policy consequences in 1980s.

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Most important impact on ‘reality’ - OPEC

• Oil price rises (1973; and again early 1980s).• Source of debt problem as many LDCs borrowed

to meet payments.• Source of accelerating inflation in developed

countries, led to political monetarist reaction in developed countries. Keynesian approach was finished.

• Debt crisis of early1980s. • New reality.

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Advanced country thinking and politics: a revolution

• Monetarism (Milton Friedman) always there; and anti-planning (Hayek); and pro-market.

• Political switch (Thatcher/Reagan) made monetarism dominate; Keynesianism dead in West.

• Debt situation delivered countries to WB/IMF who shared monetarist philosophy.

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1980s strategy• POLICIES:

– Monetarism; deflation; stabilisation and adjustment (led by WB/IMF).

– Liberalisation; move to the market. End of planning. Human dimension again neglected.

• CONSEQUENCES: – falling incomes in Africa and Latin America; ‘lost

decade’; falling investment; worsening income distribution; rising poverty.

– Growing role of market; beginning of acceleration of globalisation.

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Infant mortality rate, 1960-2001

0

50

100

150

200

250

300

SubSarahanAfrica

S.Asia E. and SEAsia

Latin AmericaInfa

nt

mo

rtal

ity

per

1,0

00 li

ve b

irth

s

1960

1970

1980

1990

2001

Figure One

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-2

-1

0

1

2

3

4

5

6

Su

bS

ara

ha

nA

fric

a

S.A

sia

E.A

sia

La

tinA

me

rica

OE

CD

Wo

rld

1965-1980

1980-1990

1990-2001

Growth in GDP p. capita 1965-2001, % p.a.

% p.a.

Figure Three

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Reaction in thinking to developments

1. New consciousness of poverty:– Adjustment with a Human Face (UNICEF),

1987;– World Bank World Development Report on

Poverty, 1990– UNDP Human Development Report

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What is HD?• Puts human at the centre, not incomes…• ‘people are the real wealth of a nation. The basic

objective of development is to create an enabling environment for people to live long, healthy and creative lives’ (HDRO 1990)

• Kant: ‘so act as to treat humanity, whether in their own person or that of any other, in every case as an end withal, never as a means only’

• Human development is a process of enlarging people’s choices. The most critical ones are to lead a long and healthy life, to be educated and to enjoy a decent standard of living. Additional choices include political freedom, guaranteed human rights and self-respect’ (HDRO 1990)

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Some key aspects of HD

1. Humans are ends not means2. In practice major focus is on BN type goods and

services, but also discusses other issues (freedom, environment, communities) – is open ended. And topics relevant to more developed countries. All issues brought in which may affect human’s potential.

3. Freedom to choose given priority – I.e. HD concerns widening human choices.

4. Incomes are means not end.5. But humans are an important resource too.

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Advantages compared with BN and capability approaches

• Goes beyond ‘basic’. Much better to have an approach that encompasses all nations.

• Beyond physical condition to institutional and political elements.

• Tries to add up and assess country progress. Here better than capability approach.

• To some extent a political agenda, work-in-progress, a rallying cry for all those seeking human and humane alternatives, evaluating our current condition.

• What difference does it make?

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Correlations between HD, GNP and LE, 2000

Countries HD/GNP HD/LE LE/GNP

All countries

0.923 0.755 0.629

Developed 0.753 0.348 0.005

Developing and transition

0.894 0.694 0.524

Low HD 0.562 0.745 0.384

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Countries with major difference in ranking, on HDI compared with GNP per capita

1. HD better than GNP

Socialist and ex-socialist

(e.g. Ukraine)

Social democrat, strong emphasis on social sectors (e.g. Sweden, Costa Rica)

Failed economies (Congo, Lebanon)

2. GNP better than HD

Oil economies (e.g. Saudi Arabia; Gabon)

AIDs affected (Guinea; Burkina Faso)

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Policy implications

• Many paths to HD success including - good growth;- good distribution of income.- well targeted social expenditures.

• But in general successes- give priority to girls and women

(education/incomes)- have high social expenditures as share

of income

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Impact on policies?

• Millennium Development Goals

• Poverty Reduction Strategy Papers

• Conditional transfers

• Microfinance

• New emphasis on health

• But too little attention paid to growth; and to distribution.

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Second reaction to growth and adjustment ‘failures’

• Focus on ‘governance’ (World Bank; Kaufman)

• Critique of aid (Easterly)

• Overemphasis on market:– Support for NGOs– Socially responsible corporations – Fair Trade

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Todays issues

• Renewed emphasis on growth

• But environmental concern? Can one have environmentally friendly growth?

• Problem of distribution – horizontal and vertical.

• Taming globalisation.