Development Theory

INTRODUCTION
• International development theorists seek to
understand how socioeconomic standards of living rise
in order to reduce poverty in developing countries of
the world.
• Despite all the efforts global poverty is still on rise.
• Role of state had always been central in the theoretical
debate regarding international development in 1980s,
though the role was shifted to the market in 1990s.
• Whereas in 2000s, collaborative governance emerged
as important for development.
• The introduction is focusing on the paradigmatic
development of theories post World War II to present.
 STATE-LED DEVELOPMENT DURING
THE KEYNESIAN HEYDAY
• Most scholars of international development theory
view its emergence s occurring in the post World War II
era, a time of decolonization in much of the world….It
call for high state involvement in managing economies.
• Development economists based in both rich and poor
countries called for “dirigiste” states in which
governments actively managed national economic
development, to compensate for market imperfections
like underemployment of resources and late-comer
status in industrialization.
 STATE-LED DEVELOPMENT DURING
THE KEYNESIAN HEYDAY
• One version of these ideas, dependency theory developed
in Latin America. Dependenistas held that poor countries
were experiencing deteriorating terms of trade owing to
their position in world capitalist system, which exacerbated
their poverty. In this theory, developed countries became
richer only by exploiting the resources of poor countries,
which experienced the “development of
underdevelopment”. A strong and protectionist state was
needed to remedy the situation.
• Interventionist governments became pervasive throughout
the developing world, involved in all elements of the
economy, service provision and welfare…..examples of
Kenya and Nigeria.
 STATE-LED DEVELOPMENT DURING
THE KEYNESIAN HEYDAY
• In most developing countries, the state quickly became the
largest employer, creating thousands of new jobs in the
Civil Service, SOEs, schools, clinics and infrastructure
projects.
• By 1975, public sector employment constituted 57 percent
of the total employment in Kenya, 65 percent in India and
40 percent in Trinidad and Tobago, and Egypt, Sri Lanka,
Tanzania and other countries provided educate citizens
with a job as the employer of last resort, whether the labor
was needed or not. By the early 1980s, public sector
employment in developing countries was averaging 44
percent, compared to an average of 24 percent in
developed countries.
 STATE-LED DEVELOPMENT DURING
THE KEYNESIAN HEYDAY
• Unfortunately protectionism and a dirigiste state were not
economically successful policies in most regions o the
world.
• The state led development policies also failed to take into
account the role of politics in economic policymaking. Most
countries had highly clientelist political economic systems,
which resulted in decision makers implementing politically
not economically rational policies…..it resulted in low
profits for SOEs, perverse incentives within organizations
and withdrawal of farmers from commercial markets,
reducing tax revenues in many countries.
• Overall the combination of protectionism with the
politicization of economic decisions curtailed efficiency and
effectiveness.
 A SHIFT TO MARKET SOLUTIONS
• As it became clear that most developing country
governments were not making economically
efficient or rational policy choices, development
theorists began to see state as the cause of
economic problems. The market became the
solution prescribed.
• Organizations like the WB, the IMF and bilateral
donors began to condition loans and grants to
poor countries on economic
liberalization…..examples were Korea, Taiwan,
Singapore and Hong Kong.
 A SHIFT TO MARKET SOLUTIONS
• Western based international donor organizations that
had supported ISI had developed a new devotion to
the market. As world commodity prices fell, the oil
crisis occurred and weather patterns produced severe
drought in the 1970s, most poor countries had little
choice but to accept donor conditionality from the
“lenders of last resort”.
• Washington Consenseus…advocated the privatization
of state enterprises, decrease in state spending,
deregulation of markets, and liberalization of trade and
exchange rate policies…
• SAP in Latin America and Africa.
 A SHIFT TO MARKET SOLUTIONS
• Bureaucratic reforms followed the principles of NPM, which had gained
favor in the West in the same time.
• Downsizing and outsourcing the state…meant to reduce the role of state
and free it from corruption.
• Governments therefore sold many of their economic assets. In Africa, a
number of countries had witnessed the divestiture of 50 percent or more
of their SOEs by the 1990s, they also slashed expenditures on social
services, following the idea that private actors could provide them more
effectively. In Tanzania, for example, social services as a percentage of
government expenditure halved between 1981 and 1986, decreasing to
the lowest point in 20 years, while fees for public services increased by 25
to 45 percent in 1989 alone.
• Rather than seeing the market being freed to allow growth to occur,
however, many developing countries experienced declining standards of
living and negative economic growth following the implementation of the
liberalization policies.
 A SHIFT TO MARKET SOLUTIONS
• When SAPS were imposed on already weak
administrative systems, moreover the policies
of decentralization, downsizing and
privatization further eroded state capacity.
Liberalization policies created a great deal of
confusion and inefficiency in the bureaucracy,
resulted in increased misinformation along
with an inability to collect information,
greater uncertainty at nearly all levels, and a
delegitimization of bureaucratic authority.
 RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• The backlash was strong against the wholesale
liberalization of economy and the shrunken role
for the state.
• SAPS were extremely unpopular in the countries
where implemented.
• A wave of research showed that the East Asian
tiger miracles had actually resulted from
extremely interventionist governments, rather
than the opposite that had been
touted….FAILURE OF PRIVATIZATION IN RUSSIA.
 RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• Removal of communism and alignment of
developing nations with West also lost its
significance, as a result instead of lip service,
donor countries started demanding actual
implementation of their policies as conditionality
of loans to be given to developing world.
• For the first time, development agencies started
talking about corruption in the countries they
have funded.
 RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• The combination of these factors led international
development theorists and policy makers to swing the
market-state pendulum back toward the center, though by
1980s World Bank had already started using the term
governance in international development circles.
• Theorists and practitioners did not turn away from market
but increasingly insisted on the strong role of state
institutions.
• Scholars pointed out that facilitating free markets requires
more state capacity than did state led development, not
less. WB Report of 1997 and 2000 focused a lot on the role
of state institutions for development.
RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• Governance thus entered the core lingo of
international development theory with specific
reference to improving the quality and
effectiveness of state institutions.
• In 1990s, talks of governance in development
circles was nearly always about “good
governance”, which often referred to as public
institutions with low levels of corruption and high
levels of democratic accountability.
• The term governance promoted the model of
democracy in advanced developed countries.
 RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• Governance consisted of the traditions and
institutions by which authority in a country is
exercised. This includes the process by which
governments are selected, monitored and
replaced; the capacity of the government to
effectively formulate and implement sound
policies; and he respect of the citizens and the
state for the institutions that govern economic
and social interactions among them (World
Bank, 2015).
RECOGNIZING THE ROLE FOR MARKET-
ENABLING INSTITUTIONS OF GOOD
GOVERNANCE
• Governance indicators ?
 GOVERNANCE IN DEVELOPMENT IN
THE TWENTY FIRST CENTURY
• Since the turn of the century, many in
international development have continued to
focus on good governance., Millennium
Challenge Corporation?
• Good Governance had also faced backlash..Good
enough Governance emerged.
• Post Washington Consensus.
• Its focus is on collaborative governance, where
state is joined by and not replaced by non state
actors.