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PSCI 2102 January 17, 2013.doc

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Political Science
PSCI 2101
Andrea Chandler

Thursday January 17th, 2013 (Summary of last week's lecture) • Gap between capitalist industrial west and the colonial world • Due to fortuitous development in West • Had political, economic and cultural implications for the development of colonial world • Colonialism, far from reproducing the conditions of self sustaining growth and increasing prosperity as well as social and political equality associated with the development of capitalism in the West institutionalized categorical inequality • Successful resistance to colonialism required both reaffirming local identity and cultural dignity but also adapting social institution of the West This week's lecture: • What is the relationship between development and underdevelopment? • Developing world countries come in this world not as developed as the developed world • Trade, investment and growth • Developed West engages the rest of the world, there is a lot that it takes in order to catch up • Most people lived in the level of subsistence -> that was the norm, it was not until the 18th and 19th century that economic growth becomes a norm of modern society • We now think its abnormal if economic growth stalls • That is not the truth for most of the world • With the theory of free trade: The important part that encourages the modern "ping" around the new world • Increases the modernization of developing world • In most societies, trade was strictly regulated to religious and cultural norms, was not necessary something that was free • David Richardo-> gave a classic example of England and Portugal • Already in beginning of 19th century, was already more developed than Portugal • (Comparative advantage) • English could produce as much wine as Portuguese • Could produce much more cloth, already invented mechanized looms and spinning • Richardo then goes to show that despite the fact that the Portuguese are less productive than the English, he goes on to show that it is still in the interest of the English to trade with the Portuguese • Through comparative advantage, everyone is better off through trade • Same theory that underlines our trade organizations • Even though both sides are better, the English are still richer • The theory of free trade makes no prediction about how the gains of trade will be distributed • It doesn't necessarily make the developing country catch up to the country that is more productive • Tells you what happens in one point of time, but does not tell you what happens next • Underlines idea that trade is a good thing Infant industry Protection and Import Substitution Industrialization (ISI) • Supposing Portugal needed time to master English weaving technology • If it placed a barrier like a tariff on English cloth, Portuguese producers might be able to develop the technology and the market • This protectionist policy might give them time to develop technology • Even if they developed the technology, would you be able to compete with a country that has been doing it for years? • If you are beginning to industrialize, basis for argument in favour of protectionism you would put a tariff to have an economic advantage, even though in the first instance you're not gaining the advantages of trade Import Substitution Industrialization • By adapting the technology of the more developed, a country could use it to industrialize • Based on tariff protection and the development of a local market for manufactured goods • Prior to WWII, colonizes has no right to develop their own technologies • When the British went to India, they not only forbade them to have technology like the British and forbade them to put tariffs on their goods • Were not interested in making the colonies better off, were interested in making the home country better off Domestic savings and Foreign Investment • Developing countries are by definition low consumption economies that are close to subsistence and lack capital • Saving= investment is foregone consumption • Subsistence economies cannot generate sufficient savings for investment • If you want to move above level of subsistence, by definition, need to invest in future • Need to actually have subsistence in an agricultural colony • Ex. Have 6 acres of land, if I sow my wheat on 6 acres of land, I can maybe have a family of 5 • Ratio is that one acre of land can produce enough wheat to keep one person alive for one year • One acre of land will produce enough grain that if sown again, could be sown on 6 acres of land • Only way to support more than 5 people is to have more seed to plant and to have more land to plant it on • Investment for greater things require somebody saving with an access to saving • If you're at the level of subsistence, you've got your 6 acres of land and 5 people, can you afford to save? • Reason why it is not so easy to get out of subsistence track -> the only options were to eat less, but that could lead to less nutrients from the food • British got out of subsistence because of an improvement in technology Savings and Investment • In a subsistence economy forgone consumption means famine • We may lose our investments but we will not starve to death (In a developed country) but if a person in Haiti loses their investment, they will starve to death • In droughts, people only die the years after the drought Foreign Investment • Poor countries can borrow the savings of the rich to invest (deb
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