Comparative Politics of Development

1. Comparative Politics of Development Why are some states poor?

2. I. The Development Paradox: How can wealth become poverty and poverty become wealth? • Poor countries in 1000 become rich ones later. Why don’t China and India rule the world?

3. Rise of the West • In 1750, China and India were the largest producers of manufactured goods (including crafts), accounting for more than half of global manufacturing. • The countries that would later constitute the Third World accounted for 73% of global manufacturing, including crafts. • But by 1913 the Third World accounted for only 7.5% of global manufacturing.

4. World Wealth, Year 1

5. World Wealth, Year 1900

6. % World Production, 1500-2000

7. I. The Development Paradox: How can wealth become poverty and poverty become wealth? • Poor countries in 1000 become rich ones later. Why don’t China and India rule the world? • Colonies (USA), fragmented states (German Confederation), resource-poor states (Japan) and late developers (NICs) all ended up more prosperous than many countries (Mexico, Brazil, African states) rich in natural resources and provided with aid from rich countries. Why?

8. II. Modernization Theory …aka Neoclassical or Development Economics • Western-centric “stages of development”

10. II. Modernization Theory …aka Neoclassical or Development Economics • Western-centric “stages of development” • Implications • S-Shaped Growth Curve

11. Predicted Growth Over Time Diminishing Returns to Capital Capital-Fueled Growth Lack of Capital TIME Per Capita GDP

12. II. Modernization Theory …aka Neoclassical or Development Economics • Western-centric “stages of development” • Implications • S-Shaped Growth Curve • Convergence – Size of national economies will eventually be determined only by population (more or less equal GDP per capita) • Recommendations: Agricultural surpluses, resource extraction, foreign investment, loans and aid, monetary stability, free capital markets, “modern” (Western) values, political stability (possibly authoritarianism)

13. D. Problems with modernization theory • Authoritarian regimes often renege on promises of development, become corrupt • West used state intervention to develop • Only the UK relied on free trade, because only the UK could be the first to industrialize • Germany and France needed industrial banks to direct investment to growth industries • Russia and Japan needed massive state involvement and protectionism • NICs used “developmental state” approach to target export sectors

14. 3. Modernization stalls • Capital wasn’t reinvested in industry

16. 3. Modernization stalls • Capital wasn’t reinvested in industry • Developed countries refused to lower barriers on textiles and other goods

18. 3. Modernization stalls • Capital wasn’t reinvested in industry • Developed countries refused to lower barriers on textiles and other goods • Debt crisis: burdens accumulated when commodity prices fell

19. Commodity prices stall while the cost of living rises….

21. 3. Modernization stalls • Capital wasn’t reinvested in industry • Developed countries refused to lower barriers on textiles and other goods • Debt crisis: burdens accumulated when commodity prices fell • Capitalist countries intervened against state involvement in economies (most common before 1960s)

22. E. Neoliberalism: An update to modernization theory • New Institutionalism: Institutions must create incentives for investment (transparency, prevent corruption, prevent rent-seeking)  embrace democracy and limited government

24. E. Neoliberalism: An update to modernization theory • New Institutionalism: Institutions must create incentives for investment (transparency, prevent corruption, prevent rent-seeking)  embrace democracy and limited government • Embrace export-led development: invest in infrastructure relevant to modern industries • Structural Adjustment: Austerity programs to reduce government spending and tax burden (increasing private investment, preventing debt spiral) • Focus on “micro” incentives to individuals/firms rather than “macro” national development projects (dams, power plants, railroads, etc.)

25. F. Evidence against Neoliberalism • Sill cannot explain NICs: autocracy “worked” in Taiwan, South Korea, Singapore, Hong Kong • “Developmental State” – government picked winners and losers • Export-led industrialization did not emerge “naturally” • Difficult to sustain free market and democracy in poor states • Self-serving: All recommendations tend to help foreign investors, but many harm domestic poor

26. III. Dependency Theory • Overview – Underdevelopment is perpetuated by the global economic order; prosperity will require empowerment of poor people in poor countries • History matters -- Past events influence present options (path dependence) • Europe: UK, France, Prussia, Russia all followed different paths, because only the UK could be first

27. 2. Colonialism • Economic effect: Colonial powers exploited colonies, siphoned wealth to home countries (slave labor, trade monopolies, head taxes, etc) • Institutional Effects: Recall the 1500 population-development trade-off from slavery-based institutions • Social effects: • Development of pro-colonial local elites: (collaborators and administrators) sympathetic to ideology and culture of colonial power • Divide-and-Conquer: Colonial power makes itself “necessary” for stability • Metropole-satellite division: Within-country division between “developed” urban areas for elites and resource-producing rural areas for exploitation

28. iv. Colonial predictors of present-day economic inequality • Former slave society (esp. tropical colonies) • European settlement: • More Europeans = more inequality (if a minority) • “New Europes” (European colonists become majority) = less inequality • Conclusion: Privileged minority in colonial period = inequality in present day • These two variables account for more than half of the variation in inequality between nations today

29. Inequality and European Settlement

30. 3. Post-colonial development • Neo-colonialism: Local elites of colonial era installed as government • Dependent development: Former colonies have lost indigenous economic structures, possess infrastructure and economic systems geared to production of primary exports (mining, cash crops, etc.) • Key idea: Underdevelopment ≠ Undevelopment – Dependent countries don’t need to “catch up” by following the paths of rich countries

31. C. How is dependency perpetuated? • Global economic system: Divided into core and periphery. Periphery’s function is to export cheap raw materials to core, then import expensive processed goods back

32. Core – Periphery: 1800

33. Core – Periphery: 1900

34. Core – Periphery: 2000

35. Primary Exports, 1990

36. Primary Exports, 2002

37. Secondary Exports, 1990

38. Secondary Exports, 2002

39. High-Tech Exports, 1990

40. High-Tech Exports, 2002

41. C. How is dependency perpetuated? • Global economic system: Divided into core and periphery. Periphery’s function is to export cheap raw materials to core, then import expensive processed goods back • Unfair terms of trade: Primary commodities lose value relative to manufactures

43. Terms of Trade Decline, 1980-2001

44. Terms of Trade Improvement, 1980-2001

45. 3. Why don’t dependent countries just industrialize like the core states? • Lacking capital, peripheral states require foreign investment and loans  strings attached

46. FOREIGN AID, DEBT, AND INTEREST PAYMENTS OF DEVELOPING COUNTRIES, 1992 AND 1997 (IN $US BILLIONS) $US Billions Aid as percent of interest: 55.7% Aid as percent of interest: 32.5% Year

47. Total Debt Service, 1990

48. Total Debt Service, 2002

49. Votes in the IMF

50. 3. Why don’t dependent countries just industrialize like the core states? • Lacking capital, peripheral states require foreign investment and loans  strings attached • Profits are used to buy imports rather than re-invest in the country • Local elites are part of the exploitive system – Exploited metropoles themselves exploit satellite areas