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Back | Programme Area: Special Events (2000 - 2009)

The Need to Rethink Development Economics (Draft)

Up until the 1970s, problems of welfare and unemployment in the developed countries, and those of poverty and underdevelopment in the developing ones, were interpreted through the lenses of the corpus of knowledge recognized as Keynesian economics and “development economics” respectively. But the oil crisis, “stagflation” and subsequent indebtedness of the developing countries severely put to test the models and the theories that had underpinned their welfare and development policies.

Although there was little in common between the actual analytical content of Keynesian doctrine and that of development economics, the two approaches shared critical views of neoclassical economic theory, and the related acceptance of state intervention. They also had in common the understanding that the economy described by neoclassical economists was a “special case”, and there were many other economies that could be “stylized” by entirely different models because they were characterized by different structural features. Furthermore, they shared the view that the state could play an important role in addressing these structural features, which often resulted in “market failures”. Both were induced by the need to solve policy problems and were not merely formal theoretical disciplines whose modelling was based on “real economies” trapped in a particular equilibrium (unemployment or underdevelopment) from which they had to be extricated. These positions opened them to attack from neoliberalism.

It is perhaps not surprising that the neoclassical counterrevolution and the ascendancy of monetarism in the advanced industrial countries during the late 1970s and early 1980s led to the rejection of development economics in the South. For the neoliberal economists, development economists falsely denied the universality of rational economic behaviour and, by their focus on perversions of standard economic theory, opened doors for dirigisme. For some, the whole enterprise of development economics was a futile one, and the dirigisme associated with it was blamed for poor economic performance.

For two decades, starting from the beginning of the mid-1970s, the status of development economics in both academia and policy circles was not enviable. The titles of some of the articles published in the 1970s and 1980s clearly suggest that all was not well with the discipline: “In Praise of Development Economics” (Thirwall, A.P. 1978), “The Birth, Life and Death of Development Economics” (Seers, Dudley 1979), “The Rise and Decline of Development Economics” (Hirschmann, Albert O. 1981), “The Poverty of Development Economics (Lal, Deepak 1983), “The State of Development Theory” (Lewis, Arthur 1984). The beleaguered discipline of development economics found itself hounded out of economics departments, development finance institutions and journals as what Albert Hirschman has called “monoeconomics” spread itself. The “pioneers” of development economics were forced into a defensive posture as they fended off accusations of providing the intellectual scaffolding for dirigisme, which had failed, as well as of downplaying the role of the market.

The “death” of development economics was not merely an academic “paradigm shift”. It was given official sanction by the United States government. The US representative to the Asian Development Bank is reported (Newsweek 13th May, 1985) to have announced that the “United States completely rejects the idea that there is such a thing as ‘development economics’” (cited in Toye, John 1987: page 73). Development economics became, as John Toye remarks, “an Orwellian un-thing” in the eyes of the most powerful nation. The Spartan certainty of the ascendant neoliberalism as to what was required left no room for specialized knowledge of the problems of development. Mrs. Thatcher’s strident “There is no alternative” was echoed in international financial organizations through a standardized set of policies that was applicable to all economies.

Aside from the attribution of the causes of the crisis of the 1970s and 1980s, and the ideological ascendance of neoliberalism in leading OECD countries and financial institutions, the demise of development economics had a lot to do with interpretation of the development experience of the postwar period. Up until 1997, the spectacular economic performance of the East Asian countries stood out sharply against the poor performance of most countries in Latin America, Asia and Africa, and the transition economies. As with all successes, these successes aroused many claims of paternity. From the mid-1970s, through a series of OECD studies (Little, I., T. Scitovsky, and M. Scott 1970), the “counter-revolution” of neoclassical economics claimed that success was evidence of the wisdom of relying on market forces. In contrast, the “lost decades” of much of Africa and Latin America were blamed on “development planning”, which distorted prices and led to slower growth. Indeed, the experiences of the quintessential development states were evoked as evidence against development economics.

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