Chapter 10: The Political Economy of Third World Development
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18 Apr 2012
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Chapter(10:(The(Political(Economy(of(Third(World(Development(
Economic'growth'coupled'with'reasonably'equitable'income'distribution'offers'the'
promise'of'improved'living'standards.'
Political'economy:'how'politics'deter'aspects'of'the'economy'and'how'the'economic'
institutions'determine'the'political'process'
The'Role'of'the'State'
In'many'developing'areas,'the'government'is'forced'to'play'a'large'part'in'the'
economy,'as'the'private'sector'cannot'supply'its'needs.'
The'Command'Economy''
• Two'central'features'
1. State'largely'owns'and'manages'the'means'of'production'
2. State'planners'shape'basic'decisions'governing'production'
• Command'economies'have'frequently'made'great'strides'toward'reducing'
income'inequalities'
• Feature'a'large'privileged'class'of'state'and'party'bureaucrats'
• Command'economies'are'more'adept'at'building'heavy'industries'such'as'
steel'mills'or'public'works'projects'than'they'are'at'developing'sophisticated'
high'tech'production'techniques'
• Market'socialism:'a'mixture'of'free'market'and'socialist'economics'
Latin'American'Statism'
• Latin'American'nations'first'pursued'stateKled'industrialization'
• Left'most'economic'activity'in'the'hands'of'the'private'sector'and'did'not'
centralize'control'over'the'economy''
• The'government'owned'essential'industries'
• Used'ISI'tactics'!'initially'created'more'jobs'but'later'it'was'revealed'that'it'
promoted'economic'inefficiency'and'income'inequalities'
• Latin'America'showcase'two'important'areas'of'inefficiency'
1. A'large'number'of'state'owned'enterprises'were'overstaffed'and'poorly'
run'
• The'combination'of'money'losing'parastatles,'consumer'subsidies'
and'subsidies'to'private'sector'producers'helped'bankrupt'most'
Latin'American'governments'
2. The'inefficiency'ISI'policies'encourage'in'the'private'sector'
• Protectionism'became'embedded'in'the'Latin'American'economy'
East'Asia’s'Developmental'State'
• The'private'sector'has'controlled'most'of'the'economy'
• East'Asian'“developmental'states”'intervene'actively'in'the'economy'in'order'
to'guide'or'promote'particular'substantive'goals'
• Typically,'each'country'had'a'powerful'government'ministry'or'agency'
• The'state'has'played'an'important'role''
• The'developing'states'have'been'authoritarian'!'allows'the'government'to'
control'labour'
The'Neoclassical'Idea'
• Assign'government'a'very'limited'roal'