DVM 2106 Lecture Notes - Lecture 4: United States Department Of The Treasury, John Maynard Keynes, Karl Polanyi
21 Jun 2018
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LECTURE 4: Development Theories and Challenges (Radhika Desai)
Industrial capitalism: A form of capitalism in which production shifts from small-scale individual
production to large-scale centralized production in factories, with an increasingly complex division of
labour. Work tasks are normally split into small, routine activities (such as assembly lines)
Capitalism: The economic organization of society in which there is private ownership and control of the
means of production and people are free to sell their labour in the marketplace. Owners of the means of
production are able to make profit, and accumulate more capital, by paying wage workers less than
what the owners earn through the sale of the products.
Keynesian policies: Policies to stimulate economic growth through state intervention in market
processes based on the idea that capitalist markets require state regulation in order to correct problems
that emerge from the operation of free markets
Laissez-faire: Literally, “leave to do” – idea is to allow individuals to pursue their own interests through
market transactions. “Perfect competition” is believe to result in optimal and more rational outcomes
than state regulation
Washington Consensus (1989): A tacit agreement between the IMF, WB and US Treasury Department
over the development policies that developing countries should follow. Consensus was formed around
key issues of macroeconomic prudence, export-oriented growth and economic liberalization
Structural adjustment (1990): Controversial series of economic and social reforms promoted by the IMF
and WB following 1982 debt crisis that aimed to promote the economic development through
minimizing the role of the state and liberalizing markets.
White man’s burden: Idea that (white) Europeans and Americans have a duty to colonize and rule over
peoples in other parts of the world because of the alleged superiority of European culture. The term was
coined by Rudyard Kipling.
Development Concept (Harris, 2014)
- Change/progress – enlightenment
- Growth (GDP)
- Right action
- Freedom
Roots of Development Theories
- Classical economics (Adam Smith, 1776) – market as “invisible hand”
- Development economics (John Maynard Keynes, 1930) – state intervention
- Modernization theory (Walt Rostow, 1960) – to transform the traditional societies to modern
societies
- Dependency theory (Andrew Frank, 1960) – core vs. periphery
- World Systems theory – French Annales, Fernanrd Braudel and Immanuel Wallerstein (1970)
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- Marxism (early 19th C) – Frederick Angles and Karl Marx
- Neo-liberalism (1980) – market-driven approach to economic and social policy based on
neoclassical theory of economics
History of Development
Industrial revolution (18 and 19th C)
- Transformation in agriculture, manufacturing, mining and transport
- A faster growth in UK, Europe and NA
Features:
- Manual labour – machine power, trade expansion (railways, steam power)
- Massive production and higher economic growth
- Britain as first industrial capitalist country took advantage of world market along with the
imperial control
- Uneven spread of capitalism; colonizer vs. colonized
Rise of Industrial Capitalism
- Interest of corporations in finding the cheap labour and resources available in the developing
world
- Increase size of the market by finding the consumers in developing world who offers an almost
endless supply of new consumers
- Increase in productivity led by complexity of the division of labour resulting in alienation of
workers
- Increase in production and profit with exploitation of cheap labours and raw materials, and
inequality in income distribution
- Capitalists employed cheap labors and the increase in production and income was unequally
distributed
- Agglomeration of wealth in some societies and pools of poverty and misery in others,
- A failure to materialize for a majority of people: as the entire society governed by impersonal
and uncontrolled set of institutions.
- Industrial capitalism is thought by some to be responsible for reducing the pool of skilled
craftspeople.
Critiques of Industrial Capitalism
- Assumption: “Market as Indivisible Hand” and the economic competition led to the welfare of
society
- Double movement: no economy can be fully controlled by market… society itself
protects against danger in self-regulating market system (Karl Polanyi, 1944)
Karl Polanyl social philosopher and political economist is known as a transformer of new
political economy, critiques on market economy illustrated by Smith.
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- Expansion of capitalism as a political and geopolitical process than merely an economic
process (Teschke, 2003)
Geopolitical process: (e.g pre capitalist state classes had to design counter strategies of
reproduction to defend their position in international environment.)
e.g., imperialism and free market reinforced the economic advantages and resulted the
division of labor among societies).
- Alternative strategies for national development through political means against the
British supremacy (e.g. unification of Germany, Meii restoration in Japan)
- Development theorists rejected the idea of “comparative advantage” and proposed
state management trade to foster key industrial sectors
Difference between high value goods produced by the high tech industries and low
value goods produced by developing countries, (questioned comparative advantage:
(productive specialization) industrial countries producing industrial good and colonies
producing agricultural goods)
Development Motivation
- Early development: White man’s burden
- Late motivation for development: recognition of oppression and plunder
- New economic order:
US emergence as most powerful capitalist nation
The emergence of the Soviet Union as an industrial power
The emergence of national liberation and decolonization movements
The role of the state in directing industrialization
Development Economics
- Predominantly Keynesian policies: importance of state in preventing crisis… John Maynard
Keynes
- E.g. capitalist crisis of Great Depression as products of cyclical deficits of demand
- State intervention through “macroeconomic policies” such as increasing state spending and
expanding credit to balance the economy
- Roles of state for the public goods (provision of health, education and workplace conditions,
whether through public or private channels)
- Aided in the determination of policies and practices which could be implemented at either the
domestic or international level
Evolution of modernization theory
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Document Summary
Lecture 4: development theories and challenges (radhika desai) Industrial capitalism: a form of capitalism in which production shifts from small-scale individual production to large-scale centralized production in factories, with an increasingly complex division of labour. Work tasks are normally split into small, routine activities (such as assembly lines) Capitalism: the economic organization of society in which there is private ownership and control of the means of production and people are free to sell their labour in the marketplace. Owners of the means of production are able to make profit, and accumulate more capital, by paying wage workers less than what the owners earn through the sale of the products. Keynesian policies: policies to stimulate economic growth through state intervention in market processes based on the idea that capitalist markets require state regulation in order to correct problems that emerge from the operation of free markets.
