Development in the Third World: From Policy Failure to Policy Reform

From Policy Failure to Policy Reform

Kempe Ronald Hope, Sr.

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315285474
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book is a study of Third World economic development and the factors which have made development so elusive. It discusses the policy reform necessary to spur development as well as the relationship between development theory and policy. The author argues that the key to successful development policy is through reduced state intervention, and that to the extent state intervention is necessary, it should be through rather than against the market mechanism.

Chapter 1
Development Theory and Third World Development Policy

Economic development in many Third World countries has been elusive for a great many reasons. Primary among those reasons, however, has been the failure of development theory, and the consequent policy thrusts arising from such theory, to capture the real long-term issues, associated with the economic environment at the time, that ultimately determine the prospects for development. For example, perhaps the two most crucial elements in the quest for development—governance and the development management machinery—have invariably been excluded from the theoretical formulations and from the policy considerations and subsequent policy implementation. However, as will be brought out in this work, governance and the machinery for development management are also critical ingredients for the successful outcome of any development policy thrust in the Third World.

One of the lessons learned from the formulation of postwar development theory and policy and their failure in the Third World is that "new ideas win a public and professional hearing, not on their scientific merits, but on whether or not they promise a solution to important problems that the established orthodoxy has proved itself incapable of solving."¹ Much too much of the work on development theory and policy has technical and scientific merit that makes it appropriate for insertion in professional publications to be read by professional economists. The formulation and implementation of development policy, however, must also entail appropriateness. If development policy has scientific merit but lacks appropriateness, then it is doomed to failure and the process of development will remain elusive in the Third World, ad infinitum.

Postwar Conceptualizations of Development

The concept of economic development has become commonplace in this century, and there is a growing body of literature on its historical development. Moreover, economists have gone to great lengths to differentiate between the terms economic development and economic growth. It is now recognized that they are two different, but related, processes that are both counterparts and competitors, depending on the time span involved, and that the distinction is important from both theoretical and policy-making standpoints.²

In the commonly used meanings of the two terms, they are clearly complementary processes, each with the potential to contribute to the success of the other. But this does not negate their competitive nature. Unusually favorable growing conditions may easily result in impressive growth for a country's traditional outputs or in increased leisure for its population, without much, if any, structural change, as was found to be the case in Liberia.³ for example. Similarly, development is possible without growth. One sector may grow at the expense of another. Industrial expansion may be matched by a decline in the agricultural sector, for example, as was the case in the Caribbean.⁴

The development-growth distinction is essential in economic thinking. Growth and development are different processes that are considered complementary in the long run but competitive in the short run. Economic growth is regarded as a process of simple increase, implying more of the same, while economic development is a process of structural change, implying something different if not something more.⁵

From the immediate postwar period to the present time, there have been several contrasting perceptions of development.⁶ In the 1940s, the less affluent countries, located in Africa, Asia, and Latin America, were usually described as backward. By the 1950s, the term "backward," with its pejorative connotation, had been generally discarded in favor of the term "underdeveloped," which implied the existence of a potential that could be realized and did not suggest directly, at least, an attitude of superiority on the part of the industrialized nations. In the 1960s, these countries began to be referred to as less developed, which was an even more acceptable term, since the countries in question were somehow to be regarded as developed, but only less so than some others. At the same time, the expression "Third World" became prominent and was used to distinguish these nations from the Western industrialized countries (First World), on the one hand, and the Eastern socialist nations (Second World), on the other.

In the 1970s, several new terms came into common use. One was the expression "developing nations," which seemed to remove all implications of inferiority. A distinction was also made between the "oil producing" and "non-oil-producing" nations. In the 1980s, the term "newly industrializing" countries emerged, referring primarily to four Asian nations—Hong Kong, Korea, Singapore, and Taiwan—that were experiencing sustained industrial growth and economic development. At the present time, the appellations "less developed nations," "developing countries," and "Third World countries" are the most widely used and are commonly used interchangeably.

Through the interwar years, the term "economic development," when used outside the Marxist literature, continued to denote the development or exploitation of natural resources. In the immediate postwar years, economic development became virtually synonymous with growth in per capita income in developing nations.⁷ Development meant a rising gross national product (GNP), increasing investment and consumption, and a rising standard of living. A theory was elaborated on the basis of Western experience during the nineteenth century. Accordingly, a developing economy was to have become strong enough and complex enough to take off toward the industrial heights scaled by many countries in the Northern Hemisphere.⁸

The tools of this type of development also were, quite clearly, anything that could help get the engines of investment, production, and consumption moving in the individual poor country, including the inflow of capital goods from the rich nations. At the same time, priority was given to import-substitution policies. Import-substitution industries were to become the key to development. Round and round the system was supposed to go, getting steadily richer, until the poor country could truly be said to be developing. This theory of economic development worked extremely well in some countries. In South Korea and Taiwan, for example, production of goods and services leaped upwards—assisted, of course, by U.S. aid and defense outlays—until the countries genuinely began to leave poverty behind.⁹

However, some flaws appeared in the theory. For one thing, many Third World nations challenged the notion that development could be measured purely in terms of growth in GNP. That challenge resulted in a search for a new meaning and approach to development. "The task was therefore one of finding a new measure of development to replace the growth or national income measure, or, more precisely, to enable the national income to be given its true, somewhat limited, significance as a measure of development potential."¹⁰ The emphasis therefore shifted and development was seen as being brought about not through reliance on external assistance but through national effort. In that regard, in the early 1960s, import-substitution policies were discarded and rapid industrialization for export expansion became the task.

In the mid-1960s, rapid industrialization was regarded as an illusion and rapid agricultural growth became the only road to development. It was felt that, in the debate over industrialization, the relative importance of the agricultural sector in development had been neglected. It was recognized, however, that the agricultural sector still loomed large in the Third World since it was the sector that provided employment for the bulk of the labor force, contained the majority of poor people, and was the birthplace of many of the urban poor. Furthermore, it was generally the foreign-exchange earnings from the agricultural sector that tended to permit or constrain the expansion of industrial output and employment.

Basically, the debate over development strategy then, as now, unfortunately, often swirled around the relative importance to be assigned to agriculture versus industry. Historical evidence, however, suggests that this dichotomy is frequently overstated. Specifically, the notion that rapid industrialization entails a total neglect of agriculture is erroneous; it underestimates the importance of the mutually beneficial links between agricultural and industrial development, and indeed, in most Third World nations, successful industrialization has been supported by sustained and broadly based agricultural growth.

During the mid-1960s also, another conceptualization or line of interpretation of development—more sociological and political—was initiated and became known as "dependency theory." Theorists from Latin America provided the initial impetus for this view, but the ideas were quickly taken up in Africa and Asia. Dependency theory raised the question of why peripheral industrialization did not have its logical effects on the course of development. It identified the problem of dependence with the assumed hegemony of the stronger over the weaker countries, and such a relationship was seen as unilateral and, invariably, negative, and was held responsible for all the ills of the periphery.¹¹ The dependency perspective assumed that the development of a national or regional unit can only be understood in connection with its historical insertion into the international political-economic system that emerged with the wave of European colonization. Development and underdevelopment were considered characteristics of the global system and were linked functionally, and, therefore, interacted and conditioned each other mutually. This, it was argued, resulted in the division of the world between industrial or "center" countries and developing or "periphery" countries. The center was viewed as capable of dynamic development responsive to internal needs and as the primary beneficiary of the global links. On the other hand, the periphery was seen as having a reflex type of development that was constrained by its incorporation into the global system and that resulted from its adaptation to the requirements of the expansion of the center.¹²

Dependency theory, however, tended to overstate the role of external influences, and consequently minimized the internal factors affecting the development of more equitable domestic economic, social, and political systems. A reduction of dependence on the industrialized nations would have required better management of local resources and significant social and economic changes within the Third World. These issues would be explored in greater detail later on. Suffice to say here, though, that the policy framework to be considered and adapted by the Third World should, of necessity, have been more introspective in nature. The exclusive focus on "dependency" to explain underdevelopment encouraged the evolution of a paralyzing and self-defeating mythology.

In the latter part of the 1960s, the Third World nations began to give priority to population control policies because of the general thinking that all development was likely to be submerged by the population explosion. Direct methods of birth control, such as contraception, became the focus of the early family planning programs. The control of natural population growth has been regarded as the most important form of population planning. However, some of the development problems resulting from population redistribution, especially in the urban areas, have also resulted in some attempts to initiate policies designed to change population distribution. Population policies, while they may have been modestly effective in a few Third World countries, did not help solve the problems of elusive development.

In the 1970s, the general thinking was that the poor masses had not gained much from development. This led to the adoption of policies in favor of distribution and the provision of basic needs for the poor. At the same time, the Third World nations began to clamor for joint action to improve their bargaining position and to protect their economic interests vis-à-vis the industrialized countries. This resulted in a United Nations resolution, on May 1, 1974, for a "Declaration and Program of Action on the Establishment of a New International Economic Order" (NIEO). The concept of the NIEO was intended to embody institutional arrangements that promoted the economic and social progress of the Third World nations in the context of an expanding world economy. It was supposed to be a framework of rules and institutions, regulating the relations among sovereign nations.

The primary elements of the NIEO were considered to be three-fold.¹³ First, and foremost, measures were to be sought to reduce, and eventually to eliminate, the economic dependence of Third World nations on industrialized-country enterprises in the production and trade of Third World countries, thus allowing those countries to exercise full control over their natural resources. A second element was to have been promoting the accelerated development of the economies of the Third World on the basis of dependence on their own internal efforts. Third, appropriate institutional changes were t...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• List of Tables
• Foreword
• Preface
• 1. Development Theory and Third World Development Policy
• 2. Tax Policy and Savings Mobilization
• 3. Foreign Aid and Foreign Debt
• 4. Urbanization and the Urban Bias
• 5. The Growth and Impact of the Subterranean Sector
• 6. Bureaucratic Corruption and the Administrative Reform Imperative
• 7. Can the Third World Develop? An Optimistic Viewpoint
• 8. Policy Reform and Governance: Concluding Comments
• Select Bibliography
• Index
• About the Author