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DEVS 100 Study Guide - Neoliberalism, Import Substitution Industrialization, International Monetary Fund

Global Development Studies
Course Code
DEVS 100
David A Mc Donald

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- Self-interested system
- Emerged during Industrial Revolution following
- Private ownership of capital
- Trading of goods
- Selling of labour
- Adam Smith: Laissez-faire economics Invisible Hand
of the Market
o Market is self-regulating
o Is there a role for government?
Small role to regulate, equalizing, only
there to equalize the playing field
- Why is it important to development?
o Creates differences in wealth between countries
o Brings to question degrees of state involvement
in the market
o Can create innovating, new ideas, through
o It‟s the system of exchange in which the world
exists, creates competing
Neo(classical) Liberalism:
1. Comparative advantage
- Countries specialize in production or labour
- Products are made at the lowest opportunity cost for
this economy
- Why is it significant to development?
o Benefit trade between economies
A is good at producing lumber, B is good a
milling it. A is going to distribute lumber
to B to turn it into product. B is
specializing in the manufacturing; A is
specializing in the production. Therefore
eliminating market inefficiencies
o Helps developing countries enter into the market
Can produce coffee beans at the lowest
possible cost
- Criticisms
o Specializing in similar product across different
countries, driving prices down
o Exploitation of cheap labour (children, women,
o Sing-product economies, making them reliable on
the Global North

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o Drives currency prices down, therefore drives
costs down
2. P-D-L (Privatization, Deregulation, Liberalization)
o Sale of state owned entities to private
- Private companies are profit driven, less wasteful,
therefore are more efficient at delivering their
- Private firms are free from government regulation
- Alleviates cost on the government, can derive profit
when they sell off certain entities
- Avoids corruption
- Criticisms
o Separate the lower costs from the hire costs
Limits access to services based on ability
to pay (class segregation)
o Profit driven, therefore the can cut corners
o Labour exploitation
- Taking away restrictions that would otherwise allow
the companies to operate freely in the interest of
- Does away with regulations that prevent competition
- Criticisms
o Environmental impacts (environmental laws
restrict company‟s freedom)
o Allows companies to potentially exploit labor for
(Trade) Liberalization
- Striking down trade barriers
- Promotes free trade
- Tariffs make markets inefficient
o Does not reflect true cost of the product
- Criticisms
o Can promote market predation
o Encourages the outsourcing of jobs from domestic
o Can kill local economies
o South becomes highly dependant of the North
3. Structural Adjustment Policies

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- Introduces policies of P-D-L
- Aid conditionalities imposed by IMF and WB
- Late 70‟s, 80‟s, and 90‟s
- AIM: help balance economies budgets, and reduce debt
while boosting economy
- Later called Poverty Reduction Strategy Papers (PPSP)
- Criticisms
o Creates dependent relationship
o Neocolonialism
o Countries saw the conditionalities as blackmail
o Put countries more in debt
o Austerity
Cut spending on social programs, raise taxes
4. Invisible Hand
- A way of managing capitalism
- Taking out the role of the state (minimize) in the
o Why should they equalize the playing field?
Otherwise you would end up with monopolies
Protecting private property
Introduce laws to make sure that everyone
competes fairly
- Emphasizes the individual
- Markets are self-regulating
- Let individuals think for themselves
o Picking what they think is the best way for them
- Assumptions about human nature
o Self-interested
o Self-maximizing
- Individuals are rational
o Maximize gain, through minimizing of costs
- Larger government role than neoliberalism
- Government needs to bail out the market in times of
crisis, leave the market alone when it is operating
- Market is not self-regulating: depressions can get
- The market is not self-correcting
- Private sector can sometimes lead to inefficient
- Lack of savings can discourage reinvestment
- Public sector needs to intervene in those times to
correct the economy, such as controlling fiscal
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