Development? It‘s History

Definitions: UNDP• The basic objective of human development is to enlarge the

range of people’s choices to make development more democratic and participatory. These choices should include access to income and employment opportunities, education and health, and a clean and safe physical environment. Each individual should also have the opportunity to participate fully in community decisions and to enjoy human, economic and political freedoms. (UNDP Human Development Report 1991, Oxford 1991, 1)

Definitions: Gilbert Rist

• ‚Development‘ consists of a set of practices, sometimes appearing to conflict with one another, which require – for the reproduction of society – the general transformation and destruction of the natural environment and of social relations. Its aim is to increase the production of commodities (goods and services) geared, by way of exchange, to effective demand (History of Development, 2006, p.13)

Definitions: Socio-Economic Development(Adam Szirmai, The Dynamics of Socio-Economic Development. An Introduction, Cambridge 2005, 6-9)

• Development conceived of as economic growth is a quantitative concept and basically means more of the same. But economic development is more than economic growth alone:– Changes in the structure of production and employment (structural change)– Decrease in poverty and malnutrition– Decline in income inequality– Improvement in employment situation

• The broad concept of development therefore involves a change of the entire society in the direction of the modernization ideals. The ideals are:– Rationality– Planning for development– Increases in production per capita and production per worker– Improvements in the standard of living– Declines in social and economic inequality– More efficient institutions and attitudes– Consolidation of the national state and national integration– National independence– Political democratization– Increased social discipline

Economic theories of development

• Adam Smith (1723-1790) (theory of capitalism)• David Ricardo (1772-1823) (theory of foreign

trade – comparative advantage)• John Maynard Keynes (1883-1946)

(macroeconomics)• Washington consensus (John Williamson)

(macroeconomic stability, rationalization, liberalization, deregulation, privatization, etc)

Classical Growth Economics

• Adam Smith (1723-1790)• Thomas Malthus (1766-1834)• David Ricardo (1772-1823)• John Stuart Mill (1806-1873)• Karl Marx (1818-1883)

Biological and cultural theories of development

• Herbert Spencer (1820-1903) (evolutionism, „survival of the fittest“)

• Max Weber (1864-1920) (protestant work ethic)

Adam Smith: key issues• Smith: object of political economy: „first, to provide a

plentiful revenue or subsistance for the people, or more properly to enable them to provide such a revenue or subsistance for themselves, and secondly, to supply the state or commonwealth with a revenue sufficient for the public services“

• For the first time: adopts production per head, as distinct from aggregate production, as central criterion of development (= per capita income)

• Sought the „why“ of growth and by implication the policies for growth

• Liberty permits change and development, government intervention handicaps positive forces of growth

• Pursuit of self-interest = „in this, he is led by an invisible hand to promote an end which was no part of his intention“.

• Ideal institutional order allows individual to behave with maximum industry and efficiency when the regard for effort is neither too low (landowner) nor too great (monopolist)

Adam Smith

• Sources of Growth– Growth of labor force and stock of capital (machinery and

equipment)– Improvements in the efficiency with which capital is applied

to labor through greater division of labor and technological progress

– Foreign trade– As long as growth in wealth favors profits, there are savings

and additional capital accumulation, hence further grown– „little else is requiered to carry a state to the highest degree

of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice“

David Ricardo

• Theory of comparative advantage• Under conditions of free trade, a country will

specialize in the production and export of those commodities for which ist costs are comparatively lowest, and will import commodities it can produce only at high relative costs

• Trade is symmetrically beneficial and „the extension of foreign trade … will very powerfully contribute to increase the mass of commodities, and, therefore, the sum of enjoyments“

John Stuart Mill

• Trade results in a „more efficient employment of the productive forces of the world“.

• Trade improves the processes of production (larger market than its own = extended division of labor = more innovation)

• Communication in trade is a „primary source of progress“• Exchange („introduction of foreign arts“ and „importation of

foreign capital“) creates „new wants, increased ambition, and greater thought for the future“

• Infant industries: „protecting duty, continued for a reasonable time“.

• Highly developed stationary state can be pleasant

Thomas Malthus

• „population, when unchecked, increases in geometrical ratio. Subsistence increases only in an arithmetical ratio“ (1,2,4,8… versus 1,2,3,4)

• Solution: operating check on society: „misery and vice (1st ed.) – „moral restraint“ (2nd ed.)

Karl Marx

• Emphasis on conflict of interests among classes within a country and among nations in the international economy (=contrast to the classical emphasis on harmony of interests within a country and mutual gains from trade in the world economy)

• Within a capitalist economy, Marx envisages progressive impoverishment, increasing severity of economic crises, intensification of class war, and the final expropriation of the expropriators and the advent of communism

• No chance for socialism to emerge unless its foundations are first laid down by capitalism itself („What the bourgeoisie produces is, above all, its own grave-diggers“)

Adam Smith

• What is the text about?– European expansion– Globalization

• What is the effect of European expansion?– Riches (trade, manufacture, industry, urbanization

rather than agriculture)– Exploitation

European Trading Companies

• Aim: establish monopoly• Character of organization: trading company

and sovereign• Problem: mercantile and particularistic

interest, necessity of force, rule is military and despotic

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World Trading Empires

Example: The VOC

Karl Marx

• What is Marx concerned with?– Company misrule – Neglect of public works– Destruction of native textile industry– Dissolution of village communities

Friedrich List (1789-1846)

• Connection between market and state

• Importance of freedom• Importance of free trade• Importance of diversified economy• Need for (temporary) protection

of home markets• Primacy of a national economy in

the short term• Need for universal free trade in

the future (world government?)