Development of What? On the Politics of Development Economics

SPECIAL ARTICLE Development of What? On the Politics of Development Economics Arup Maharatna It could possibly be sheer historical coincidence that development economics as a distinct branch of economics was born at a time when the cold war was blossoming. But the question as to what has subsequently happened to the fate of the sub-field along with the trajectory of the cold war – the great “intangible” battle fought mainly in the spheres of ideology, economics, politics and propaganda between the capitalist and socialist blocs – cannot be similarly left as a historic fluke. A detailed substantive academic attempt at examining/establishing the latter apprehension has so far remained suspended or sometimes just taken for granted in most retrospective accounts of development economics. This paper makes a systematic study of the issue and argues that the evolution of development economics has been heavily mediated by international politics and that development economics, as it exists in the post-cold war era, entails a great delusion in relation to its original purpose, promise and priorities. I am deeply thankful to Jean Drèze and N Krishnaji for their encouragement and comments on an earlier and larger version of this paper. Arup Maharatna ([email protected]) teaches at the Gokhale Institute of Politics and Economics, Pune. Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 T hat development economics (DE hereinafter) had encountered – within only about three decades since its birth in the late 1940s – stern academic attacks against its independent identity and even survival, is “a thing of the past” now, especially to the dominant mood of current economics profession.1 There have, of course, been a few glitters of counterarguments (Sen 1983; Chakrabarty 1987, 1988; Stewart 1985; Martin 1991; Dutt 1992; Naqvi 1993, 2002; Toye 1987, among others), but they all proved to be too feeble for salvaging the so-called “formative period development economics” (hereinafter FPDE).2 A few subsequent attempts at the latter’s resurrection turned like a formal homage to the “deceased” (Krugman 1992; Murphy et al 1989; also select chapters in Mookherjee and Ray 2001). Meanwhile, DE found itself “alive” in its predominantly neoclassical/neo-liberal incarnation – and this time, however, with a irm lease of long life. Rhetorically speaking, development economics was hardly “baptised” after its birth. For example, there had been no entry for the term “economic development” in the Encyclopedia of Social Sciences at least till early 1980s (Arndt 1981: 457). While the “magisterial survey” of growth economics appeared in the Economic Journal in less than two decades after its “birth” (Hahn and Mathews 1964), DE had to wait for about four decades to see its survey of comparable “majesty” published in the journal (Stern 1989).3 In fact, DE used to be like a “problem child” of the economics discipline, with students grumbling that “they can see no underlying structure or framework within the study of development economics” (Hall 1983: 1; see also Basu 1984, 1997).4 By now, there is considerable survey literature of DE both in the nature of routine stock-taking of academic contributions (Bardhan 1988, 1993; Stern 1989; Meier and Rauch 2000) and in the spirit of broad-brushed, relective and evolutionary narratives (Chakravarty 1988; Sen 1997; Krugman 1996; Thorbecke 2006; Bardhan 1993; Dutt 1992; Toye 2003). However, direct (and indirect) inluences/bearings of global dominant politics and powers on the directions of DE remain generally iltered away in most of these accounts. For instance, the justly celebrated survey of DE by Stern (1989) is structured around the questions/themes/issues that have propelled it to bear “fruits” for economics generally. Consequently, “[i]t is not a history of thought, nor research manifesto, nor an attempt to adjudicate or settle the major debates” (Stern 1989: 597). Likewise, Sen (1997), while sketching the trajectory of development thinking up to the beginning of the 21st century, makes a binary division between a strand that he called BLAST (short for “blood, sweat and tears”) and a paradigm 61 SPECIAL ARTICLE he called GALA (getting-by with a little assistance), bypassing more familiar dilemmas over “market versus state”, “proit versus planning” or “classical versus neoclassical”. Textbooks in DE purge off even more rigorously political underpinnings/undercurrents (see Nafziger 1976 for a critique of leading US textbooks on DE). While DE contains occasional – albeit casual – hints at inluences of global dominant politics on shifts of development paradigms, attempts at closely-documented expositions of this linkage are conspicuously rare (though it is not so in political science and sociology). For example, a correspondence in the early 1980s between the conservative parties coming to power in the US, Britain, Germany and elsewhere, and swings of donor opinion and development thinking towards market and monetarism is almost routinely noted in passing in DE literature (Killick 1986: 99; Toye 1987; Martin 1991: 53, among many others). However, a distinct dearth of documented elucidations of such historic contingence/ coincidence leaves some deeper questions open. One, for instance, is whether neo-liberal/neoclassical resurgence in economics was cause or effect of the rise of conservatives to power or of the world economic crises in the 1960s and 1970s (Frank 1980, 1981), which interestingly, least affected “social corporatist” countries such as Austria, Finland, Norway, Sweden, where Keynesian institutions were most well-developed (Banuri 1991: 5).5 Similarly unexplained remains what Bardhan (2000: 3) calls an irony, namely, “the international agencies” sponsorship of injecting market fundamentalism across a hapless debt-ridden third world at a time when the faith itself was being shaken among “mainstream economic theorists”. Such seemingly stray claims/ statements leave otherwise deeper contradictions or questions unresolved in the absence of detailed investigations into the mechanisms by which global hegemony makes DE its “handmaiden”.6 For example, mainstream DE literature hardly heeds such revelation that the US oligarchs and their foundations pour “hundreds of millions into setting up of ‘think-tanks’, founding business schools and transforming university economics departments into bastions of almost totalitarian neo-liberal thinking”.7 Filling the Gaps However, standard critiques of “neoclassical resurgence” or “counter-revolution” are not really rare in DE literature; indeed, there are also some recent critical evaluations of methodological and intellectual contents of so-called “new” or “post-Washington Consensus” DE (Fine 2006a; Jomo and Fine 2006). But detailed analyses from a historical standpoint towards unfolding a systematic symbiosis between cold war trails in global politics, dominant ideological swings and the directions of DE are conspicuously rare.8 The chief object of the present paper is to ill up this gap by identifying the contours and ingredients of this historic “chemistry”. We argue that DE, once a ield for creative contestations among ideas, ideology, and committed scholarship on development issues, has, over the post cold-war era, been fast becoming an ediice of elegant/abstruse “models” far distant from the profound formative period concerns, visions and dilemmas which gave rise to the birth of the subject in the irst place. The seriousness of this lies, inter alia, in its deep (potentially) adverse ramiications for pace and pattern of development in developing countries. 62 Birthmarks of Development Economics Economic realities of colonies in the past hardly found place in the mainstream economics discourse – a fact which Gunnar Myrdal described as “pre-war unawareness” (1973: 65-67). As Meier (1984b: 209) remarked: “Out of intellectual tradition, academic economics excluded the problems of underdeveloped countries until after World War II” (italics added). However, DE began to emerge as a separate sub-discipline and indeed as a triumphant event in economics discipline since the end of the formal imperial/ colonial era around the 1940s (Galbraith 1994: 172-82). By the end of the 1950s and the early 1960s, FPDE strived on “creative rediscoveries and adaptations of earlier historical writings”, and set out with a commitment to planning and with a strong conviction that “for understanding of the problems of development – even if qualiied as economic development – one needs to look beyond the boundaries of contemporary economics” (Martin 1991: 50). Indeed, with a clear-headed recognition of the irrelevance of much of the neoclassical premises and tools, FPDE had engaged itself with broader issues of poverty, misery, unemployment and fulilment of basic human needs (Myrdal 1968). Albert Hirschman wrote about the formative period of development economists thus: “[they] had taken up the cultivation of development economics in the wake of World War not as narrow specialists, but impelled by the vision of a better world”. This vision entailed essentially a move from, to use Paul Rosenstein-Rodan’s words, “the national welfare to the international welfare state” (both quoted in Yergin and Stanislaw 1998: 75-79). Unsurprisingly, FPDE could not help feeling more directly the heat and hazards of ideological warfare unleashed by the cold war. An early edition of the textbook on DE by Meier and Baldwin (1957: 11-12) made plain enough the stakes of developed western countries on the subject: “[e]ncouragement of development is a prominent feature of American and British foreign policy in order to conine the spread of communism, to expand trade between industrial nations of the free world and the poor countries, and to lead the new expressions of nationalism into democratic pro-Western forms”. A strong afinity between classical economists’ queries and key concerns of FPDE is fairly discernible (Bardhan and Udry 1999: 1; Meier 1984a: 3). However, the latter has still been distinct by its task of evolving strategies for rapid economic development in a vastly different postcolonial setting of Asian, African and Latin American countries. Since “development theory has from the start been closely related to development strategy” (Hettne 1990: 3), the recognition of the key role of the state and public policies – concordant as they were with the lasting Keynesian resonances spanning up to the 1960s (Toye 1987, Chapter 2; Hettne 1990, Chapter 2; Hosseini 2003) – served almost as a binding force of FPDE. This, however, did not preclude highly illuminating and concerned debates within FPDE (Hirschman 1998; Alacevich 2007: 18). Indeed, there had been fairly fast growth of the latter over the post-war quarter century, largely by way of addressing development strategies amidst structural rigidities and market imperfections (see, e g, Meier 1984b, Chapter 6 for a summary). This period was one of rising prominence of “a variety of interventionist theories”, culminating into what is sometimes called a “Golden Age Economics” (Chang 2002: 540). Although, november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly SPECIAL ARTICLE initially, the concept of development was narrow, with its exclusive concentration on GDP per head and its growth, powerful criticisms both from within (Stewart and Streeten 1976; Streeten et al 1981) and outside (World Bank 1977, ILO 1976) against this bias led, by mid-1970s, to a broadened notion of development seen as a means (not just goal) to the fulilment of basic human needs (poverty elimination, minimum provisions of education, nutrition, health, employment, sanitation, etc) (see Morawetz 1977, chapter 3; Streeten et al 1981). Yet, a stark antipathy against independent foothold for DE since the time of raging cold war of the 1960s and 1970s continued its presence not fully felt as yet (Bauer 1957, 1972 and others). For example, Bauer opined openly that no notion of a third world could emerge on earth if the “west” did not begin to commit itself to providing aid.9 By the late 1970s, the shock inlicted by the oil crisis of 1973 precipitated in the developing world an economic downturn and debt crisis, which was greatly compounded by stalling industrial growth in developed countries and hence, the latter’s growing scepticism about aid, its rationale and eficacy. All this set in motion a unwarranted choking effect on the fountains of FPDE. By as early as 1981, Albert Hirschman, a staunch pioneer of FPDE, could not resist from lamenting the puzzling signs of its retreat: “[i]t is something of a puzzle why development economics lourished so briely, even though considerable advances have taken place in many erstwhile ‘underdeveloped’ countries [and] encouraging inroads on the problem [of world poverty] have been and are being made” (quoted in Kanth 1997: 192). The clue to the “puzzle”, according to many, lay in “unlikely” or “abnormal” historical times. As Leys (1996: 25) notes, “the 1950s and 1960s were not ‘normal’ times but, on the contrary, a special interlude in the history of the worldwide expansion of capitalism in which ‘development theory’ could be born”. In a similar vein, Hirschman (1981) ascribes this “extraordinarily productive” FPDE to “an a priori unlikely conjunction of distinct ideological currents”, which carried seeds of problems in the future (quoted from Kanth 1997: 192; italics added). The uneasy question as to how FPDE, which had been relatively pro-state and planning, with sometimes even Marxian overtones (see Bardhan 1986), could gain increasing ground amidst the cold war decades of the 1950s and 1960s, is often pushed off into irrelevance by hardliner neoliberal analysts in their subsequent heydays (Krueger 1990: 9). Of course, the birth of DE embodied a destiny of its own extinction, that is, when “poor” countries become “developed”. Indeed, FPDE had focused on its mission to obliterate the gulf between rich and poor nations, in August Heckscher’s eloquent words, “without hope of seeing [our] efforts crowned with rapid success or ourselves blessed with appreciation and gratitude” (Myrdal 1968, Vol 1, p vi; see also Hettne 1990: 2). However, the profound heterogeneity of developing countries has always been a source of tough potential challenge towards holding DE as a coherent branch of economics. As Todaro (1994: 9) remarked, “there can [also] be no single development economics”. Indeed, this challenge of dealing with the heterogeneous gave in to neoclassical/ neo-liberal attacks (more on this shortly). In turn, DE became “a ield on the crest of a breaking wave”, but textbooks kept on pointing to its yet-to-be fulilled ultimate purpose “to help Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 improve the material lives of three-quarters of the global population” (Todaro 1994: 9) – a dilemma to which we turn now. Stage-Work for the Drama of DE since the 1980s The prominent organising role ascribed to the state by FPDE towards rapid industrialisation and self-reliant growth in developing countries became increasingly at variance with the ideology of the capitalist bloc in the cold war (Engerman 2004: 31).10 To use Meghnad Desai’s (2002: 251-52) eloquence: [t]he free-market radicals were working hard in the 1950s and 1960s, thinking not the ‘unthinkable’ but the ‘unthought of’. .. They were ruthless in their self-criticism, as well as in examining their rivals’ arguments. The battles were fought in learned journals, conference volumes, books. No blood was spilt, but a most profound change in economists’ thinking – a veritable revolution was brought about. That the cold war had predicated a close networking between the US Department of Defence, corporate giants and academia over about a quarter century following the war, with its adverse ramiications for academic “independence” and “self-image”, is well-documented in political science literature (Leslie 1993; Chomsky et al 1997).11 With the efforts to bring academia closer to terms with the cold war agenda, came, by the 1960s, a stern rethinking about aid to developing countries through the Bretton Woods institutions. Jacob Viner, an inluential American neoliberal economist, made it plain: “The only factor which could persuade us [US] to undertake a really large program of economic aid to the underdeveloped countries would be the decision that the friendship and alliance of those countries are strategically, politically, and psychologically valuable to us in the cold war” (quoted in Mason 1964: 16). In the early 1960s, a good deal of academic energy was harnessed towards gauging the “value” of developing countries to the US in the cold war context. The US’ concern is best echoed in what the then one US secretary said: “If you don’t pay attention to the periphery, the periphery changes, and the irst thing you know, the periphery is the center” (quoted in Wolf 1963: 634). In this vein, a more close inluence of the US on India’s economic policies was strongly recommended by some American scholars in the 1960s: “[I]n spite of the high quality of India’s economists and oficials, the United States must play a more active role than heretofore in inluencing Indian plans and implementation policies on development. It [the US] must try to use its instruments of aid and trade to stimulate those policies it thinks desirable” (Rosen 1966: 272; italics added). By the late 1960s, the Area Studies Programme sponsored a series of evaluations of economic performance of individual developing countries by using neo-liberal yardsticks. For example, the foreword written by the president of the Brookings Institute to a Ford Foundation-funded book, Quiet Crisis in India, authored by J P Lewis, reads thus: “[t]he United States is far more than an interested observer in India’s concerted effort to speed her economic expansion. ….Americans have a vital stake in India’s attempt to achieve radical economic transformation by constitutional procedures” (Lewis 1962: vii; italics added). In the Nehruvian era of the 1960s, dominated by the vision of a “socialistic pattern of society”, Lewis (1962) discovered, inter alia, 63 SPECIAL ARTICLE a “quiet crisis” brewing in what he describes as “the irst and, in many ways, the most signiicant non-Communist economic experiment in Asia” (ibid: vii). Multilateral agencies like the World Bank and corporate foundations in the US had begun inancing “modelling exercises” in universities, with a view to making “political use of model results to modify policies of the developing country that was modelled” (Srinivasan 1998: 125). For instance, an attempt – albeit abortive – was made by some at the Centre for International Affairs at the Massachusetts Institute of Technology to modify India’s Third Five-Year Plan model even by inluencing the then Indian ambassador in Washington, thereby bypassing the experts of the Indian Planning Commission and those from outside (ibid). Research programmes were initiated in the 1960s to establish “infallibility” and “universality” of the neoclassical laws of rationality – even in the economies of the poorest of the world (see, e g, Schultz 1980 for arguments and evidence). As Ian Little writes (1982: 137), “[r]searchers were hard at work in the late 1960s, under the umbrellas of either the OECD [Organisation for Economic Cooperation and Development] or the World Bank project or both” to challenge what they called “myths” of FPDE, namely, protectionist policies, infant industry argument, import substitution (IS) industrialisation, worsening terms of trade). Indeed, this was largely because of such “hard work” in the 1960s and 1970s that nearly the whole world had witnessed, by the 1980s, “a harsh reversal of economic policies followed hitherto and a move towards neo-liberal and neoclassical policies that emphasised privatisation and liberalisation” (Emmerij 2006: 1). Chang (2002: 540) has recently explained the latter in terms of an “unholy alliance” between neoclassical economics, which provided most of the analytical tools, and what we may call the Austrian-libertarian tradition, which provided the political and moral philosophy. The advanced countries at the OECD’s Convention held in Paris on 14 December 1960 resolved to “contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations”.12 Accordingly, it became imperative for the new paradigm and its articulation which could convince the developing world about the impeccable potential beneits of opening up of foreign trade, particularly by augmenting exports to pay for increasing imports. For example, in 1954, the Foreign Operations Administration established an Institute on Economic Development at Vanderbilt University to apprise the “returning foreign trainees” across developing countries about “development problems from a more general perspective”, which was, understandably enough, the US’ oficial one (Worley 1988: S1). In fact, three years later, the International Cooperation Administration commissioned the Vanderbilt University to inaugurate “a comprehensive, year-round program designed to meet the training needs of oficials in developing nations who were charged with creating and/or implementing development plans”. This programme was subsequently supported for many years by the United States Agency for International Development (USAID), Ford Foundation and Rockefeller Foundation (ibid: S1-S2). Similarly instructive are Bela Balassa’s (1988: S275) remarks, relecting the concerns of the US and its efforts towards making developing countries adopt “liberal trade” policies: “In late 1959, 64 people in Washington were searching for a country that would adopt outward-oriented policies in exchange for initial help by the United States, a bargain to be announced in President Eisenhower’s January 1960 State of the Union message”. Accordingly, Taiwan turned to be a good “choice” of USAID for such “experimental” aid “in exchange” for a country’s commitment to the “manufacturing for exports”, culminating in what is perhaps loudly echoed in Bela Balassa’s somewhat historic remark: “[t]he rest is history” (ibid).13 In the same vein, South Korea’s readiness to adopt a policy of “export-led industrialisation” in the 1960s could fetch her massive economic assistance and “extensive technical support” provided by USAID, apart from sumptuous US military aid and foreign assistance received for improvements in health, education and agriculture. Almost overlowing US aid since the 1960s with watchful eyes on its intended effects (for example, boost to export-led industrialisation) affected much of south-east Asia, particularly those which were soon to be portrayed as “tigers” in the developing world and thereafter as “poster boys” of market-based outward-looking development strategy (see e g, Stubbs 1999: 344-46, and references cited therein). OECD Project In the mid-1960s, the OECD Development Centre had launched a massively funded, centrally designed and monitored, multicountry research project on patterns of both industrialisation and foreign trade in select developing countries. The speciic country studies were assigned to “individuals with close irsthand knowledge of the countries concerned in collaboration with some research institute in each”. Its authors, who were all made consultants of the OECD Development Centre in Paris, had to undergo two major workshops – one, in involvement with the World Bank’s two closely related projects, to set a uniform design prior to the start; and the second, only after completion of the irst drafts (Little et al 1970: xiii). Little wonder, the project arrived at the recommendations coterminous with the OECD mission and its ideological predilections: a withering away of IS strategy followed so far, opening up foreign trade with a boost to exports in particular, liberalisation of industrial policies and administrative controls to create larger free space for private market and capital (ibid, especially Chapter 1). In the mid-1970s, the National Bureau of Economic Research (NBER) sponsored a series of 10 country studies with a view to demonstrating the merits of export-orientation and outwardlooking policies (vis-à-vis IS industrialisation) from the standpoint of eficient use of scarce domestic resources (Meier 1984b: 176-79, and references cited therein; Little 1982). Not surprisingly, the major empirical studies commissioned by the OECD and NBER could ind “the enormous waste that attended the IS strategy” (Bhagwati 1984c: 201). As Little (1982: 118) writes, “it has taken years of patient work to undermine the myths” [of FPDE] (e g, the IS strategy, export pessimism, market failures). Mainstream economics, with its longpreached neutrality from political and ideological overtones, could rather quickly yield itself to accepting and trumpeting the hollowness of FPDE (Karunaratne 1982; Healey 1972). However, the foregoing leaves one sceptical as to whether “the patient work” of the former did anything more than mere replacement of what it saw as november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly SPECIAL ARTICLE “hypotheses [of FPDE] accepted as facts” with the neo-liberal dogmas craftily posed and presented as facts (Banuri 1991: 9-11). For instance, one World Bank-sponsored comparative study on trade and protectionism is found to have “extracted very strong pro-liberalisation conclusions from limited and imperfect information” by relying on subjective indicators of trade orientation (Edwards 1997: 44). Indeed, studies sponsored by the World Bank and other multinational agencies often face criticisms, particularly from outside and sometimes even from within (Wade 1996; Stiglitz 2002; van Waeyenberge 2006; Dreher et al 2009). As Wade (2001: 127) writes: “The World Bank has been especially useful instrument for projecting American inluence in developing countries, and one over which the US maintains discreet but irm institutional control”. Not surprisingly, these issues often remain subtly suspended in the mainstream DE curricula and textbooks.14 Trumpeting East Asia On the contrary, increasingly adverse economic impact since the oil shock of the 1970s on the heavily-indebted developing countries having faced rising world rates of interest along with international climate shifting towards “monetarism”, a direct offshoot of neoclassical resurgence, began soon to be interpreted as a sign of failure of FPDE (Martin 1991: 53). This, in turn, was often used as an opportune backdrop for projecting and trumpeting an euphoria of rapid growth of four south-east Asian countries in the 1970s and 1980s as an “acid-test” of the superiority of the neo-liberal development paradigm. As Datta (1987: 602) writes, “An endlessly repeated theme of this literature [on ‘east Asian Miracle’] is that it was the magic of the unhindered free-market mechanism with its concomitant of unrestrained export-orientation which did the trick of these countries”. Notwithstanding clear evidence of the exacerbation of poverty and inequality in these so-called “tiger” countries, “ideological propaganda leads from generalised special cases to panaceas” (Karunaratne 1982: 268). By the mid-1980s “even the dividing line between developing and developed countries” began to be questioned, with the developing world seen merely as “a great political achievement” in the form of a pressure group at the United Nations and other international bodies (Haberler 1987: 62-63). In 1986, Anne Krueger (1986: 62-63) ampliied what remained subdued in the preceding decades, namely, the vainness of DE as a separate branch: Once it is recognised that individuals respond to incentives, and that ‘market failure’ is the result of inappropriate incentives rather than non-responsiveness, the separateness of development economics as a ield largely disappears. Instead, it becomes an applied ield, in which the tools and insights of labour economics, agricultural economics, international economics, public inance and other ields are addressed to the special questions and policy issues that arise in the context of development. To some, the rise of South Korea, Taiwan and others even marked the end of the third world (Harris 1986). Also, a lethargic reluctant mood of the North towards the NorthSouth dialogue since the 1960s (Haq 1976, Chapter 8) culminated in a “stalemate” by the early 1980s over the issues of international resource allocation and distribution (Ruggie 1984), leaving “a frustrated southern monologue ever since” (Bhagwati 1984b: 1). The 1980s had not only witnessed declines in low of concessional funds, Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 but there had indeed been increases in reverse lows of resources (i e, from developing to developed economies). As Chishti (1989: 244) writes: “Not that the developed market economies are completely oblivious of their interests being linked with those of the developing countries. They have identiied those developing countries which are of strategic importance to them either as markets or as sources of raw materials. But they focus their attention on them in accordance with case-by-case approach.” By the mid-1980s, the world at large began to witness the replacement of “the full-blooded Ministry of Planning... by the mild-mannered Central Ofice of Project Evaluation” along with the domineering new view of development as opening up of trade (Bell 1987: 825). There was feeble resistance even from the DE pioneers to such neo-liberal intrusions into the development discourse. Louis Emmerij’s (2006: 2) eloquence on this academic indifference is worth quoting here: [w]here had all the Nobel laureates gone who had been so instrumental in the early years to shape development thinking both in the UN and in the world at large?...[N]o consistent counteroffensive was mounted in the early 1980s. ….[S]o the purse won [over ideas] mainly because the existing ideas of the 1970s were not defended and adapted strongly and carefully enough and no alternative ideas were brought forward in a suficiently authoritative fashion. Although this passivity in defending FPDE against the onslaught is thought to be precipitated by the so-called “government failures” (corruption, vested interests, rent-seeking motives, etc) across the developing world (Krueger 1990), it is far from clear, and can still be debated, as to how far the development experience up to the 1970s is justly branded as a failure of FPDE per se (Lewis 1988; Chakravarty 1988; Naqvi 2002). Indeed, FPDE has been neither blind to, nor dismissive of, the evidence and practical/potential dificulties associated with the typical character and weaknesses of the state in the developing world (see Myrdal 1968, among many others). Many pioneers of FPDE were themselves much worried about the extent to which the suggestions and insights based on their painstaking research could be actually implemented by the governments of developing countries (Streeten 1995: 195-200). Meanwhile, there was a growing voice and research towards focusing directly on immediate needs for improvements in human development rather than in aggregate growth rate (Sen 1983), culminating in the irst Human Development Report in 1990. Indeed, the entire exercise of discrediting FPDE took off amidst fairly encouraging performance of the developing world as a whole: “[i]n average per capita income the developing countries grew more rapidly between 1950 and 1975 – 3.4% a year – than either they or the developed countries had done in any comparable period in the past” (Morawetz 1977: 67; italics added; Grifin 1999: 6; Nayyar 2009: 10-12; Chang 2003a: 46; Yusuf and others 2009: 10-12). However, a recent World Bank-commissioned book almost summarily brands in retrospect FPDE’s contribution to this unprecedented income growth even during its “heady times”, 1950-1975, “arguably trivial” (ibid: 12). Indeed, despite well-argued cases and optimisms for FPDE (Sen 1981; Chakravaty 1987, 1988; Singh 1992; Stiglitz 1996; Naqvi 1999; Stewart 1997; among others), the neo-liberal claims to the supremacy through inter alia carefully exaggerated (and convenient) interpretations of the east Asian miracle swayed over the development thinking and policy. 65 SPECIAL ARTICLE Despite considerable legitimacy gained by the human development perspective over the years, it could never take on the domineering neo-liberal arguments and programmes. Indeed, the former, by not challenging the latter’s basic premises, could never free itself from the deep contradiction “that makes it possible to denounce what one urges, and to practise what one regards as unacceptable” (Rist 2008: 209-10). Although the east Asian crisis of the late 1990s did occasion a (temporal) “showdown” of the neo-liberal ideological “imperialism” (Stiglitz 2002, Chapter 4; see also Wade 2001), its tendency to dismiss its own predictive failures or to explain them away in circular fashion has bred “a new form of scholasticism where facts are made to it the theory rather than vice versa” (Portes 1997: 254). We turn now to a closer look of the role played by the Bretton Woods institutions in shaping the evolution of DE along the trails of the cold war. Role of the Bretton Woods Institutions Against a backdrop of the growing triumph of neo-liberal ideas over FPDE since the 1980s and of a concomitant retreat of the Keynesian lending principles of earlier decades, the World Bank could not help changing its “identity” (Carlos and Pereira 1995). In fact, it increasingly took over the task of promoting neo-liberal ideological agendas in the wake of what is popularly known as the Washington Consensus. To quote from a recent book on the World Bank and IMF: “[w]here the World Bank was used, its work became inextricably linked to the geopolitical imperatives of the Cold War” (Woods 2006: 33; also Wade 1996). In the same vein, Koi B Hadjor (1988: 49), editor and publisher of Third World Communications, remarked in 1988: “It is now customary for western powers and international agencies like the IMF to work out the economic policies that the nations of the South should pursue. Even the UN has joined in the act.” Indeed, the World Bank’s predilection for free-market neoliberal paradigms was apparent even as far back as the 1950s: “The single most important component of the Bank’s development ‘philosophy’ which emerged at the outset, was its irm and pronounced bias in favour of the advantages, not to say virtues, of a market economy and a system of private ownership and enterprise” (Adler 1972: 34). Although the role of the Bank as a source of development theory was neither anticipated by its founders, nor a part of its original charter, it has always had – by dint of “its inancial clout” – “tremendous powers to spread and popularise ideas that it latches on to” (Gavin and Rodrik 1995). By the 1970s, the Bank had launched several innovative initiatives towards establishing academic leadership in DE. First, the World Bank had inaugurated in 1978 what its “insiders” retrospectively describe as the birth of a “star”, namely, the World Development Report (Yusuf and others 2009: 1). Second, the Bank’s centrally administered Research Support Budget (RSB) is one of the major avenues through which “non-Bank researchers become involved in the Bank research” (Fischer and de Tray 1990: 8). One basic requirement for a project under RSB is that it must be rooted within the Bank, “speciically that it be sponsored by a Bank unit, which will administer it and take responsibility for its successful completion” (ibid: 8-9). 66 By the mid-1980s, the Bank had also commissioned a major research project covering 21 developing countries, with a view to carrying forward its intellectual/ideological agendas through centrally monitoring, managing, and funding the entire project. For example, the monograph representing the synthesis of the indings of the diverse country studies under this project (Lal and Myint 1996: 5) writes as follows: The comparative studies method, which is largely based on the classical method, can also be looked upon as a form of story-telling. Moreover, as a story-teller tries to tell a story which is both interesting and persuasive, so the method is attuned to the multifaceted aspects of persuasion. These concern the selection of “facts”, the crafting of the story, and choosing from amongst a number of competing stories the one which its the “facts” better than another. Indeed, its concluding chapter ends with just an excerpt from Peter Bauer (1984), in which the ideal role of government is delimited strictly to four arenas, namely, external affairs including defence and public security; the administration of monetary and iscal system; the promotion of institutional framework conducive to market operations; and “the provision of basic health and education services and of basic communications” (quoted from Lal and Myint 1996: 406). The authors added only a slight modiication – albeit of stronger neo-liberal stance – by substituting the term “provision” in the fourth area above by the words “possible inance” (ibid). And, Bauer’s above excerpt is then hailed as “enough to be getting on with to promote poverty-alleviating growth in much of the Third World” (ibid). Meanwhile, the World Bank had launched in 1984 a series of conferences with the “irst generation development economists” (Meier and Seers 1984; Meier 1987), with the purported aim of instating a newly domineering neo-liberal/neoclassical stance through creating an informed/reasoned consensus about the failings of FPDE. It should not have been easy initially to get the DE pioneers to patronise the new neo-liberal/neoclassical approaches, which were not grounded on the notion of developing countries as a separate group. In its sequel, an “intergenerational” symposium involving both the irst and second generation development economists was organised in 1999 by the World Bank, with a view to bolstering more recent neo-liberal/neoclassical thrusts among the “next generation” development economists (Meier and Stiglitz 2001). In 1989, the World Bank had embarked on an annual series of Work Bank Conference in Development Economics, with the major aim of bringing “researchers from the Bank’s member countries together with Bank staff to stimulate interaction and exchange of ideas and information” (Fischer and de Tray 1990: 1). This soon culminated in the “single largest gathering of the development economics community in the world” (Kaji 1996: 8; italics added). While all this could fetch the Bank its recognition as “intellectual actor” (Stern 1993), its role as “intellectual leader” in DE remains more subtle. For example, it is nearly impossible to ascertain, as writes Adler (1972: 49), “as to how much of the Bank’s development ‘philosophy’ was original and how much of it was the result of conscious or osmotic acceptance of new ideas generated ‘outside’” – thanks both to multi-channelled professional-intellectual intercourses between the Bank and other institutions, and to the propensity of innovative ideas to change shape between conception and ultimate application. november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly SPECIAL ARTICLE Instances emerged of newer DE textbooks being written at the behest of “stimulating environment provided” by powerful multinational agencies such as the IMF (Agénor and Montiel 1996). That this could contribute to intellectual and ideological capture of DE by the latter gets reinforced by inadequate academic freedom and freehand of the latter’s research staff – a fact that has been revealed by a recent report of a panel of experts’ evaluation of World Bank research (Banerjee et al 2006: 161). Thus, almost exponential expansion of readings under the Handbook in Development Economics series can hardly be beyond the ideational shadows of the Bretton Woods institutions. It cannot but be hugely ironic if DE, which used to be seen, by the post-war neo-liberal camp of the cold war, as a “pressure group” in the UN and other multilateral offshoots, is transformed into the latter’s “lagship” itself. Pulling DE into the Neo-liberal Mainstream The link between much of post-war research programmes in economics (for example, Keynesian militarism, rational choice, game theory, advanced general equilibrium analysis, US monetarist school) and the cold war imperative of forging “the ideas of fundamentalist capitalism” is fairly well known.15 For example, as Fusfeld (1998: 5) writes: “In summary, during the cold war a high theory came to dominate economics that explained the suitability and superiority of a particular set of social institutions whose defence and extension was the goal of the cold war. It also became the high theory of fundamentalist capitalism, helping to forge a conservative political reaction against activist government”. As noted already, the need for effacing the distinctiveness of DE has long been on the agenda of the neo-liberal camp in the cold war. In the aftermath of the Keynesian revolution, this seemed almost impossible without distinct conceptual renovation of the neoclassical/neo-liberal approach. The latter task was urgent, as the “neoclassical counter-revolution” failed to make a convincing case for “the re-absorption of development economics into general economics” (Martin 1991: 56). The overhaul of the neoclassical mode of argumentation is required to have been such that “the main changes of perspective that have affected development economics are the same as those that have affected economics as a whole” (Toye 2003: 36). First, while over the preceding centuries economics virtually never treated human beings as the embodiment of “capital goods”, this was done effectively for the irst time through introduction of the notion of “human capital” in the early 1960s (Blaug 1976). Strikingly, research on the role of historical contingency in the origin of this momentous swing in economic thought is nearly absent relative to the attention devoted to its wide theoretical and practical ramiications.16 A wide potential of human capital notion, particularly towards merging DE within the fold of neoclassical mainstream, was possibly well augured by Theodore W Schultz’s famous remark in his Nobel lecture: “Most of the people in low-income countries are poor, so if we know the economics of being poor we would know much of the economics that really matters” (Schultz 1980: 639). The notion of human capital inspired endogenous growth (EG) models which, in turn, could offer simultaneous resolutions to two Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 outstanding dilemmas of the neoclassical school: irst, reconciling the logically inevitable precept of convergence of national incomes per capita in the long run with the contrary actuality obtained; second, bringing DE to the mainstream economics/ theory (Romer 1986; Lucas 1988).17 For example, treating development of developing countries within a general dynamics of EG bypasses deep historical, institutional and organisational issues, “which are less amenable to neat formalisation” (Bardhan 1998: 107). The EG theory reinstates the long-despised bias for income growth per head as the essential measure of development (see Sen 1983 for the latter’s critique). By the time the EG theory took off, many ripples had already been made in the new horizons of development thinking, namely, human development and capabilities (Sen 1981, 1984, 1985), but the latter inds no reference in the former. Apart from doubts about net “newness” of the EG theory over the earlier neoclassical models, the former’s potential for ideological backing to the dominant global power is clear enough: “as far as the revolution in economics is concerned, endogenous growth theory might not be in the vanguard, but it is certainly liable to be one of the new wave of following colonisers” (Fine 2000: 263). Putting developed and developing countries into a single theory of growth arguably provides an intellectual blueprint of the new scheme of globalisation in the postcolonial era. This, however, calls for recasting the Anglo-America-centric history of economic thought. (Note that this long-standing course in economics curriculum had begun since the 1980s to be scrapped in many a university department globally). This task of reinterpreting economic history along the lines of the neo-liberal world view is partly addressed by the “new/neoclassical institutional economics”, which seeks to explain cross-country economic differences essentially in terms of the eficacy of promoting “economic institutions” conducive to market capitalism (for a survey, see Lin and Nugent 1995). This induced a subtle – but irm – move away from the earlier relatively humane and practical questions as to how developing countries could be made free of poverty, to the question of why some countries have remained poor, while others have not: “There is one central, simple, question in the study of economic development: why are some countries developed, and others less so?” (Mookherjee and Ray 2001: 1). This question admittedly circumscribes the inquiry into why “institutions”, which historically had evolved in advanced countries, did not (and/or do not) similarly emerge in developing countries. As Douglas North (1990: 134), one of the chief architects of the new institutional economics, writes: “To attempt to account for the diverse historical experience of economies or the current differential performance of advanced, centrally planned economies and less-developed economies without making the incentive structure derived from institutions as an essential ingredient appears to me to be a sterile exercise.” Rhetorically speaking, only about half a dozen comparatively slim (but widely regarded as seminal) books and/or articles could re-interpret – in terms of neoclassical optimising behavioural universalism – the entire global economic history spanning more than half of the preceding millennium ((North 1981, 1990; North and Thomas 1973; Williamson 1985; Olson 1965, 1982; Grief 1992, 1997; 67 SPECIAL ARTICLE Grief and Weingast 1994; Coase 1960; among others). Strikingly, many of the articles on reinterpreting the economic history in terms of such notions as transaction cost, incentive structure and economic institutions appear, not in the leading specialist journals of economic history, but in the journals of mainstream economic theory.18 In fact, doubts are often cast as to whether reinterpreting history in the new institutional economics perspective is a historical exercise at all (Woolcock et al 2008). In one variant of this new neoclassical perspective, the role of geography and geophysical features in the patterns of economic development through complex interactions with institutions, politics, and culture is also highlighted (Krugman 1995; Hasan 2007). In any case, “in the economics of institutions theory is now outstripping empirical research to an excessive extent” (Matthews 1986 quoted in Lin and Nugent 1995: 2362). The contribution of new institutional economics to the institutional reforms in a country is often considered as an area where development economists “can do well while doing good” (Tullock 1984 quoted in Lin and Nugent 1995: 2363; also Chang 2003b). Joseph Stiglitz’s oft-quoted remark in 1989 for placing DE at the centre stage of economics is worth noting here: “A study of LDCs is to economics what the study of pathology is to medicine; by understanding what happens when things do not work well, we gain insight into how they work when they do function as designed. The difference is that in economics, pathology is the rule: less than a quarter of mankind lives in the developed countries” (quoted in Bardhan 2000: 3). Notably, the same year, the World Bank’s annual series of DE conferences was launched with its new notion of DE seen quintessentially as a “commons” accessible to most major branches and specialities of economics: Although often seen as a subdiscipline of economics akin to labour economics or international trade, in fact it [development economics] embodies all economic subdsciplines, distinguishing itself by applying these subdisciplines to a particular set [of] countries. Because development economics is not a separate discipline, experts in virtually any of the traditional economic and other social science disciplines can contribute to ‘development’ research if they direct their expertise to the speciic circumstances – the institutional and social character – of developing countries (Fischer and de Tray 1990: 9, italics added). In its sequel, there emerged a new breed of DE textbooks in clearer facades of mainstream economics and hence, with far more mathematical abundance than ever before, keeping away from deeper “quintessential problems” and/or “questions impossible to answer” attributable to FPDE, towards the questions answerable elegantly by virtue of the “results in pure economic theory” (Basu 1984: viii). The North-Holland publishing house launched, by the late 1980s, the Handbook in Economics series of bulky readings in DE – all commissioned, centrally edited and richly updated survey papers on diverse issues written by respective international authorities. By the 1990s, the DE profession was further endowed with such impressive (albeit somewhat stunting to the older generations) titles as Development Microeconomics and Development Macroeconomics – in line with the newer dominant view of DE as a common ground for display and application of expertises of major sub-disciplines of economics. In the following section, we conclude by exemplifying 68 the major contours and more recent directions of DE in the post-cold war era. In Lieu of a Conclusion: Development of Development Economics? A triumphant voice is frequently heard now from the DE profession for its hard-earned respectability within mainstream economics, as if the effacement of the allegedly “low” status of DE has been its prime motivation: “Once upon a time there was an ugly duckling called development economics…full of strange assumptions and contrary logic and all the other economics made fun of it…as it grew up, it beefed up its theoretical muscles and ugly assumptions…it became the envy of all the rest” (Banerjee 2001: 464). Of late, there has been an outpouring – under the so-called “new development economics” (NDE) – of narratives of its success in obliterating its (long-perceived) “stigma” or “ugliness”.19 Note, for example, a recent remark in the gloriication of NDE: “Development economics stands in beleaguered ascendancy, atop development studies and development policy. Economists and economic thinking dominate the leading development institutions. The prestige of development economists within academia… has never been so high” (Kanbur 2002: 477; italics added). Likewise, contemporary DE textbooks appear keen to capture its “changing face” (Basu 1997: xvii), leaving in doubt as to whether this means – even remotely – depicting the changing face of peoples of developing countries.20 Meanwhile, DE has had so huge a “facelift” that it looks like a “stranger” or as if “it no longer exists” (Krugman 1992: 15). Moreover, of late, the DE profession keeps consolidating periodically their own share of credit in the advances of economic science generally (Bardhan 1993, 2000; Banerjee and Dulo 2005; Stiglitz 1988), even though “the problems of the world’s poor remain as overwhelming as ever” (Bardhan 2000: 13). This growing state of “separation” between the two “faces”, namely, between DE and the peoples of developing economies, cannot but be worrying. Indeed, in view of the original zeal embodied in the genesis of DE, one could only wish that these “applauses” at its advances had not been devoid of the consideration for the extent of improvements in, in Arthur Lewis’ words, “the level of living of the masses of the people in LDCs” (quoted in Streeten 1982: 110). The latter concern assumes deeper seriousness, particularly because per capita income growth in developing countries halved from 3% in 1960-80 (i e, FPDE era) to 1.5% (meagre 1% when India and China are excluded) during 1980-99 (Chang 2003b: 6; Weisbrot et al 2006). No less worrying is an increasing air of uncertainty as to what presently constitutes DE. It is often considered to be so “very frustrating” a subject that “two scholars can with equal justiication write two completely different textbooks” (Meier and Rauch 2000: xvii). As it strives in reductionist fashion on “more widely cast and methodologically opposed methods”, Ben Fine has named it “zombieconomics” (Fine 2009: 885). “There is currently a thickening air of scepticism about the original ‘proposition that development economics’ is actually little more than ‘the economics of developing countries’ ” (Tribe and Sumner 2006: 957; italics added). Faltering on the notion of development and hence about november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly SPECIAL ARTICLE ideal yardsticks for assessing achieved development is still as germane as ever (Krugman 1996; Shin 2005). Neoclassical perspectives founded on market-based growth, capital accumulation, productivity and technical progress exist alongside broader multi-disciplinary perspectives on quality of well-being, functioning, freedom, rights, governance, and ethics of development (see Clark 2006 for a summary; see also Loxley 2004; Harriss 2002). This coexistence relects not mutual regard, but rather, indifference. For example, out of 62 chapters published so far in 13 parts of the Handbook of Development Economics series, there are hardly any chapters on human development, capabilities and freedom perspectives. On the other hand, a fairly vigorous growth of initiatives such as the setting up of the Human Development and Capability Association, and multiplying the number Notes 1 See, e g, Bauer 1972, 1984; Seers 1979; Hirschman 1981; Little 1982; Lal 1983, 1992; Bhagwati 1984a. There has, of course, been some variation in the spirit and argument with which this dismissive voice was expressed by respective scholars (Chakravarty 1988). 2 This term – FPDE – which refers to the 1950s and 1960s, was coined by Meier (1984a,b). Subsequently this was called “high development theory” by Krugman (1992). The neo-Marxist or dependency school of development/underdevelopment experienced broadly the same life course as of FPDE. We do not deal with the former separately. For an excellent concise treatment of the former’s relatively brief career, see Rist (2008), Chapter 7. 3 Although the Journal of Economic Literature published survey articles focusing on some speciic new areas both in growth theory and DE (Britto 1973; Healey 1972; Grifin and Gurley 1985 and Williamson 2000), a comprehensive survey of DE has never appeared in JEL to my knowledge. 4 No less illustratively, the Twentieth Century Fund happened to sponsor only within about 15 years both Gunnar Myrdal’s masterpiece, Asian Drama, an epitome of deep concerns, commitments and passionate scholarship on economic development, as well as Ian Little’s Economic Development that sought to almost bury the former. This volatility relects (at least partly) ideological divergences that perhaps make for the uniqueness of economics in which “the [Nobel] prize is often split between one person who has developed a certain thesis and another who has laboured mightily to prove it wrong” (Hirschman 1981, quoted from Kanth 1997: 196). 5 The terms “neoclassical” and “neo-liberal” – while remaining distinct in the pre-war period of economic thought – became increasingly interchangeable over the post-war years (Chang 2003b: 3). 6 See, e g, Toye 1987: 159; 2003: 37; Martin 1991: 52; Naqvi 1998: 975; Bardhan 2000: 2; Mehmet 1999: 8); Kiely 1998: 35, among others. 7 Quoted from George Manbiot’s article in The Guardian (London) reprinted in The Hindu (a leading Indian daily, Chennai), 29 August 2007: 13. Of late, however, new research has documented the impact of the cold war on the social sciences academia too (e g, Lowen 1997; Westad 2005). 8 One exception perhaps is Rist (1997) who has sketched how changing global economic and political order and circumstances have shaped the various incarnations of the notion of “development” starting from the early days of economic thought. 9 For a succinct discussion on such perspectives, see Toye 1987: especially Chapter 1, among others. 10 For discussions on the major perceptions and ideological predilections of FPDE, see e g, Meier and Seers 1984, especially papers by G M Meier and A W Lewis and Meier 1984b, Chapter 6, among others. Economic & Political Weekly EPW november 26, 2011 of journals and research centres on human development studies is simultaneously a reality. DE is now alleged to have grown to a point of “the embarrassment of riches” in terms of the variety of “models” (Mookherjee 2005). The latter’s value admittedly lies in testifying to researchers’ high levels of mathematical skill, intuitive ingenuity, productivity in producing elegant algebraic “mechanics” between impersonalised economic categories such as incentives, resources, prices, compensation and pay-off (Ray 2007). This growing academic output seems particularly useful in announcing further development of DE. Ironically, there would surely not be many who can dare deny that DE, while remaining open to newer ideas and methods evolved both in its own area and in the subject of economics in general, must “keep alive the foundational motivation” of its own.21 11 Strikingly, the collection of papers in Chomsky et al (1997) contains no chapter dealing speciically with the economics discipline (let alone DE). 12 Visit the OECD website. The OECD, which was set up in 1961 in the wake of decolonisation, with the opening up of the new ield in Africa, southern Asia, the Paciic and the Caribbean, was an outgrowth of the Organisation for European Economic Cooperation founded in 1948 to organise the distribution of the Marshall Plan Aid, chiely amongst the member European countries. 13 That the foreign aid during the 1950s-1970s was used to a large extent as an instrument of both the camps in the cold war for acquiring control over the political regimes in the recipient countries is often noted and well documented (Grifin 1996). But the role and ramiications of foreign aid as an instrument for manoeuvring of economic policy of recipient developing countries towards establishing the neo-liberal ideology as economic regime are relatively less researched. 14 There are some universities – particularly in parts of Europe – where these issues are made part of some specialised taught programmes in development or development studies. 15 This was also possibly complemented by the Soviet bloc’s “discernible shift in emphasis away from ideology towards a growing understanding of the importance of underpinning aspirations with economic deeds” (Machowski and Schultz 1987: 244). 16 As Mark Blaug (1976: 849) wrote, “[a] research program …can only be adequately appraised in relation to its rivals of roughly equal scope. The human-capital research program, however, has no genuine rival of equal breadth and rigor”. 17 The idea of distinguishing between growth and development has not been recognised for long by many of the neoclassical persuasion, mainly on the ground that both essentially mean increases in per capita incomes (Dorfman 1991: 573fn1; see also Hosseini 2003). 18 For instance, Lucas’ seminal paper on economic development appeared in the Journal of Monetary Economics in 1988. Similarly striking is the recent appearance in this journal of a paper that deals statistically with the effects of tropical germs and crops through “institutions” on the long-run incomes of various countries (Easterly and Levine 2003). 19 See, for example, the collection of papers prepared for a symposium on New Directions in Development Economics: Theory and Empirics, and subsequently published in Economic & Political Weekly, 1 October 2005, No 4. 20 W Arthur Lewis – while sketching the progress of developing countries since the publication of his seminal contribution to the development model some 30 years back – kept vivid his concern for the face of developing countries (not DE): “if economic growth continued at this pace for another 30 years, the standard of living of the third world would be unrecognisable” (Lewis 1988: 23; italics added). vol xlvi no 48 21 This sentence, of course, draws on (or rather paraphrases) Amartya Sen’s earlier remark: “Development economics, it can be argued, has to be concerned not only with protecting its ‘‘own’ territory, but also with keeping alive the foundational motivation of the subject of economics in general” (Sen 1988:11). 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