Ideas in the History of Economic Development

The Case of Peripheral Countries

Estrella Trincado, Andrés Lazzarini, Denis Melnik, Estrella Trincado, Andrés Lazzarini, Denis Melnik

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000227918
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This edited volume examines the relationship between economic ideas, economic policies and development institutions, analysing the cases of 11 peripheral countries in Europe, Latin America and Asia across the nineteenth and twentieth centuries.

It sheds light on the obstacles that have prevented the sustained economic growth of these countries and examines the origins of national and regional approaches to development. The chapters present a fascinating insight into the ideas and visions in the different locations, with the overarching categories of economic nationalism and economic liberalism and how they have influenced development outcomes.

This book will be valuable reading for advanced students and researchers of development economics, the history of economic thought and economic history.

Part I
Europe

1
Degrees of abstraction in development economics

Vladimir Avtonomov

1. Development and growth: semantic differences

When dealing with development and theories of development, it is difficult to avoid semantic issues. What do we understand by development? Some authors argue that “in some sense, until about 100 years ago, most economists were development economists” (Reinert, Gosh, & Kattel, 2016, p. xiii). Consequently, how we use this term is critical. Development and growth are terms that usually go together, but sometimes they part company. What kind of growth is called “development” in economic discourse? First, it must be growth connected with some kind of qualitative change (for the better, of course). However, quantitative growth alone, in the Marshallian sense (natura non facit saltum), is not called development by most economists. Some kind of saltum (or saltus if we use the correct Latin grammar) is required. According to Hegel, quantitative change can become qualitative. However, this principle can hardly be used here – for instance, Schumpeter’s economic development was not originally connected with quantitative change and only leads to it eventually.

Second, we mostly look for development on the macro level. The absolute prosperity of the country is always important, but countries also compare themselves with other developed countries or regions. This comparison provides a stimulus and direction for development. England was trying to catch up with Holland, the United States and Germany with England, Russia with Europe, the countries of the Third World with the countries of the First World. So, what was the stimulus for Holland then? This is a good question. Probably it was the desire to be strong enough to break free from Spain. Here again, the Schumpeterian concept of development cannot be applied – because it dealt with the micro level.

Cases of real development in the sense specified earlier were rare, even rarer than rapid quantitative growth. So, we can detect few periods in history when qualitative change coincided with growth.

2. Two canons of economics

In our overview of the history of development economics, we will refer to two canons of economics with different degrees of abstraction. This distinction is most actively proposed by Erik Reinert (2007).

The first (more abstract) canon came into being with the emergence of physiocracy and English classical political economy, which maintained a high level of abstraction and tried to follow the steps of the natural sciences with their search for eternal laws of nature and human society. This canon took a relatively high level of technology for granted and concentrated not on production, but on exchange and prices and their natural (subsequent) equilibrium levels. This tendency was especially clear in Ricardo’s works. The concept of equilibrium is probably the core idea or ‘the key metaphor’, of the first canon. Natural order was considered an approximation to paradise. Classical authors underlined the self-regulating properties of the market economy (as long as the government protects free competition). Government was responsible for creating an institutional framework within which the ‘invisible hand’ could do its job. In the first canon, man is considered ‘the animal that has learnt to barter’.

The second canon was actually the first to emerge. However, its beginnings did not generally fall within economic science, but rather the art of housekeeping and state administration. The second canon is less abstract than the first; it is based on everyday experience and the plurality of human motivation. It is inseparable from specific local and temporal contexts. Its main objective is to produce a useful economic theory, and it is not isolated from other social sciences. Its methods were less sophisticated and included temporal and spatial comparisons. Representatives of the second canon include members of historical schools, old institutionalists, and behavioural economists.

The two-canon model is, of course, an abstract model itself. It emphasises certain features of economic theories and ignores others. In some cases, it is not easy to place famous economists within a specific canon (Adam Smith is one such example). However, we believe that this model can help us deal with development theories in economics.

This second canon included the vast body of mercantilist literature, which was concerned with the prosperity of nations and cities by comparing them to each other. Contrary to Smith’s view, this literature was not limited to trade and trade balance issues. In fact, the most widely known part of mercantilist reasoning, which focused on money as the source of value and balanced trade, was abstract enough to belong to the first canon! Nevertheless, we should concentrate here on another important element, which dealt with the productive forces of the respective states, their growth, and how to use them efficiently. As E. Reinert (2016) highlights, the key players of development thinking among mercantilists were Giovanni Botero, who stressed the importance of industry in interstate competition, and Antonio Serra, who used the argument of increasing returns, which provided theoretical support for Botero’s thesis. All mercantilist literature was addressed to princes and kings and called for active policy measures. The active role of the state was a conditio sine qua non. Natural order was thought to be barbarism. Economic harmony was considered man-made and not a natural state, a belief held, for example, by Smith and Bastiat. In the second canon (especially in German thought), man is considered ‘the animal which has learnt to invent’.

The positions of these two canons with regard to economic policy can be char-acterised as activist-idealist, as opposed to passivist-materialist (Reinert & Rössner, 2016, p. 68). The second canon presupposed an ad hoc economic policy, which moved economic activity in the right direction but was flexible enough to adapt to the changing environment. The first canon advocated a policy of principles, creating a stable institutional framework for free economic activity. These canons are “parallel streams, often at different levels of abstraction, which give the mainstream a cyclical aspect in the long term, as if science were ruled by fashion” (Reinert et al., 2016, p. xvi). This cyclical aspect is clearly summarised by the same authors: when things go well in the world’s core economies, economics tends to become very abstract and, essentially, as a direct result of this high level of abstraction, the role of policy is minimised (or, rather, not minimised but reduced to several basic universal principles).

3. The history of development economics viewed from the standpoint of the two canons

Development economics as a systematic and specialised discipline originated after the Second World War and with decolonisation, when many new independent states emerged which were obviously underdeveloped in comparison with industrial powers. The countries defeated in the war – Germany and Japan (Italy is sometimes included and sometimes not) – also experienced a serious setback that was overcome by the mixture of ingenious economic policy, American economic aid, and national enthusiasm to rebuild their states from scratch. These were called ‘economic miracles’, and considerable literature has been devoted to this subject. However, this story is not traditionally included in development economics despite the common problems that both underdeveloped and defeated countries shared.

The emergence of development economics was preceded by several advances in economic theory that had previously addressed similar problems. With the concept of the aforementioned canons in mind, let us turn to prominent representatives of both canons and their attitudes towards economic development. The notion of canons could be relevant here, because the very phenomenon of economic development becomes visible and sensible only when the degree of abstraction is relatively weak, which allows for many qualitative differences and does not consider all economic activity as uniform.

The first canon and development

Undoubtedly, Adam Smith’s position cannot be attributed to the first canon. The fact that he coined the term “the mercantilist system” and opposed the policies proposed by mercantilists has nothing to do with the degree of abstraction of his system. His book is full of concrete spatial and temporal details, and he stressed the importance of the division of labour and the progress of knowledge and education, which is characteristic of the dynamic approach we associate with the second canon (Dutt, 2016, p. 91). However, according to him, the division of labour resulted from a natural feature of every human being – the “propensity to truck and barter”. The division of labour thus came about by itself and did not require special efforts by the government (except for safeguarding free competition). Smith wrote the Wealth of Nations during the course of the Industrial Revolution in Britain, which was the result of the growing division of labour in his opinion.

Ricardo’s work was far more abstract, of course. He discovered potential benefits from trade between countries with any level of industrial development. Quantitative differences in labour costs for goods produced in different countries were found to be a universal source of mutual benefits in international trade. This was a great accomplishment for abstract economic analysis, which surpassed the capacities of common sense. However, for the more concrete canon, which considered historical details, countries were qualitatively different, and all of them, except Britain, found it difficult to take advantage of free trade. We can also find a contribution to disaggregated analysis in Ricardo’s theory. It is the distinction between industrial and agricultural sectors, the latter being characterised by diminishing returns, which leads to the disappearance of profits and a gloomy future for the economy (Ibid.). However, Ricardo did not believe that industrial growth could save the economy from this outcome.

The important feature of the first canon is the homogeneity of economic agents (except class differences between landowners, capitalists, and workers, which played a great role in classical political economy where income distribution was a major problem) and the commensurability of all goods, which are valued according to the quantity of labour they represent. Homogeneity and uniformity also implied a standard assumption of constant returns to scale (Reinert, 2016, p. 35). This homogeneity allows a quantitative approach to growth, a comparison in terms of aggregate quantities of goods in value terms. Important disaggregations used by classical political economists were the distinction between agriculture and the rest (physiocrats) and between consumer and producer goods. The representatives of the abstract canon (Quesnay and Marx) invented sophisticated numerical schemes that illustrated how a balance between these parts or sectors of the economy could be reached. The case of Marx is more difficult and will be dealt with specifically later.

Overall, growth within the abstract canon was achieved by means of capital accumulation (capital also being homogenous and expressed in monetary terms). In turn, accumulation was caused by saving, due to thrift and other bourgeois virtues.

Compared with classical political economy, the marginal revolution increased even more the degree of abstraction within the first canon. The static equilibrium analysis presumed that the optimal outcome had already been achieved by economic agents. Even the dynamics took the form of comparative statistics. Thus, optimality was built into the economic theory – there was virtually no need for development. Many decades elapsed until a neoclassical theory of growth emerged, due to the efforts of Robert Solow (1956) and Trevor Swan (1956). They brought growth to the first canon of economics, but it was purely quantitative growth.

The second canon and development

After the Industrial Revolution, first in Britain and later in France, it was no surprise that development thinking was evolving, but not in those two countries. Progress was being made in other lagging countries like the German states, the United States, and Japan. The ‘cameralist’ tradition – a specific German variety of mercantilism – already existed, and Friedrich List combined it with a good piece of comparative economics. The comparison was made between different countries and different periods within the same country. One important addition was the emphasis on spiritual factors of development that List partly took from Heinrich Storch’s doctrine of internal goods. This also followed the German tradition (though Storch lived and worked in Russia) with its focus on learning and progress. List’s opposition to Smith was anti-materialistic. List’s assertions were based on his personal experience in the German states, France, and the United States, but he did not feel the need for logical proof when the intuitional conclusions seemed so obvious to him. His practical position determined the low degree of abstraction he used in his writings. Industry, education, communication and transport, urbanisation, political democracy, and legal institutions could be considered the post-List pillars of economic development. Once again, it is signifi-cant that List considered the importance of free trade and protectionism as depending on the stage of development, with a switch from the latter to the former taking place when the highest agro-industrial stage was achieved. Actually, List and Ricardo personified two different schools or canons of economic thought, at least in the nineteenth century.

As the second canon is less abstract, it did not presume homogenous economic activities. This made analytical work much more difficult, but at the same time it drew attention to qualitative differences between goods and i...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• Introduction
• PART I Europe
• PART II Asia
• PART III Latin America
• Index