Theories of development second edition contentions arguments alternatives

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Responsibility Richard Peet, Elaine Hartwick. Edition 2nd ed. Imprint New York : Guilford Press, c Physical description xii, p. Available online. Full view. From Keynesian economics to neoliberalism -- Dynamic analysis -- Keynesian economics -- Keynesianism and social democracy -- The developmental state -- Structuralism and import substitution -- Development economics : balanced and unbalanced growth -- The counterrevolution in development economics -- Crisis in Keynesian economics -- Neoliberalism -- Neoliberalism in economic policy -- World Bank policy -- Benevolent consensus -- Millennium Development Goals -- Debt relief -- Critique of neoliberal development -- Ch.

Development as modernization -- Naturalism -- Rationalism -- Civilized development -- Structural functionalism -- The Parsonian synthesis -- Critique of structural functionalism -- Sociological modernization theory -- Economic modernization theory -- Psychocultural theories of modernization -- Historical stages of growth -- Modernization surfaces -- Critique of the modernization approach -- Return of modernization -- Critique of Sachs -- Critique of modernization -- pt.

Nonconventional, critical theories of development -- Ch. Marxism, socialism, and development -- Idealism and materialism -- Dialectics -- Production as the transformation of nature -- Production as social relations -- Capital -- Mode of production -- Development as social transformation -- Structural Marxism -- Imperialism -- Dependency theory -- World systems theory -- Regulation theory -- Criticisms of Marxist and neo-Marxist theories -- Socialist development in the USSR -- Cuba -- Venezuela -- Conclusion : development in contention -- Ch.

Poststructuralism, postcolonialism, and postdevelopmentalism -- The enlightenment and its critics -- Post-enlightenment criticisms -- Power-truth-knowledge -- Postcolonialism -- Intellectual dependency theory -- Rethinking development -- The poststructural turn in development studies -- Encountering development -- Postdevelopmentalism -- Conclusion : countercritique -- Ch.

Feminist theories of development -- Feminist epistemology -- Feminist criticisms of development theory -- Women, development, theory -- Women in development -- Women and development -- Gender and development -- Women, environment, and development -- Postmodernism and development -- Critique : a failure of nerve?

Critical modernism -- Ch. Critical modernism and democratic development -- Alternatives -- Critical modernism -- Democratic development -- Ethics -- Social movements -- Linkages -- Radical democracy Dimensions 23 cm Edition 2nd ed.

Extent xii, pages Isbn Isbn Type hardcover : alk. Ask a Librarian! Library Locations Map Details. He thought that this question could not be fully answered by economic science, for the answer depended partly on the moral and political capabilities of human nature, and on these mat- ters the economist had no special means of information.

But the answer depended to a great extent upon facts and inferences that were within the province of economics, and that gave to economic studies their chief and highest interest Marshall All the forces acting on the economy generated signals or reactions that tended, over time, to push the econ- omy toward an optimal state.

A shortage of any good or service brought a rise in its price that in turn called forth additional resources to produce it, creating a greater supply and a reduction in its price. Economic change occurred through smooth and continuous adjustments.

Bohm-Bawerk concentrated on the roundabout nature of modern production, that is, the large number of stages intermediate between original factors of production and final consumption that created a demand for capital and justified the charg- ing of interest on capital in any kind of economy, socialist or capitalist. Essentially these theorists were working out a theory of efficient supply. All together this second generation of marginalists formed the core of the neoclassical school of economics, espousing a science shorn of sociological and historical material, abstract in conception, supposedly nonnormative that is, neutral, not taking sides, not particularly making prescriptions on how the economy should change except to say it should be more efficient , universal in application, and technical and mathemati- cal in its methodology.

Dynamics and questions of economic growth and development took a backseat to statics and partial and general equilib- rium. Neoclassical economics leads to the conclusion that markets are generally competitive, do not tend toward monopolies, and that, left unimpeded, market processes usually result in optimum levels of produc- tion and allocation.

This school of thought also implies that there are rel- atively limited instances when government should intervene to promote economic ends, other than encouraging market competition, providing adequate schooling, and encouraging savings and investment.

Finally, the U. We find, with Clark, the picture of the enlightened maximizing individual, acting within generally competitive conditions in an overall state of static harmony Hutchison — But with Clark we also find neo- classical economics abandoning its veneer of class neutrality—U. All together, neoclassical economic theory asserted that, under con- ditions of perfect competition, price-making markets yield a long-run set of prices that balance, or equilibrate, the supplies and demands for all commodities in production and consumption.

Given certain conditions, such as the preferences of consumers, productive techniques, and the mobility of productive factors, the market forces of supply and demand allocate resources efficiently, in the sense of minimizing costs and maxi- mizing consumer utilities, in the long run. Finally, all the participants in production receive incomes commensurate with their efforts. Under these assumptions, capitalism was therefore the best of all possible economic worlds—efficient, want-satisfying, and full of social justice everyone gets what he or she deserves.

And, while this was not the main objective, economic growth results from the efficiencies produced by rational pro- ducers and consumers meeting in self-regulating markets. These sim- plifying assumptions transform human subjects—analyzable using psy- chology, sociology, anthropology, and the like—into mechanical objects, understandable through mathematics.

This shift enabled economics to resemble physics, the leading science of objects. Neoclassical economics appeals to the scientific mind. It presents itself as an objective science of society, and its methodology is mathematically elegant. Yet, scientific elegance comes at a price.

Daniel Kahneman stresses the role of intuitions—thoughts and preferences that come to mind quickly and without much reflection—in economic decision mak- ing. That is, intuitive judgments occupy a position between the automatic operations of perception and the deliberate operations of reasoning. The famous economist Joseph Stiglitz — origi- nally made a reputation by arguing that asymmetric information is a key feature of the world.

In most situations, the two sides of a market have vastly different information about the good or service transacted, sellers typically knowing more about what they are selling than buyers know of what they buy, so that adverse selection occurs. That is, low-quality products drive out high-quality products unless other actions are taken— signaling and screening—so that the economic transactions that occur are different from those that would emerge in a world of perfect informa- tion Arnott, Greenwald, Kanbur, and Nalebuff Arguments like these, which earned Kahneman and Stiglitz Nobel prizes in economics, verge on criticizing the notion of Homo economicus, the rational, perfectly informed automaton occupying the central position in the whole marginal-market-competitive system of the neoclassical eco- nomic imaginary.

Even so, these criticisms are limited. They seek merely to qualify a neoclassical economics that they too assume to be essentially valid—Stiglitz for instance, has written a major textbook that lies within the conventional mainstream. But we believe that more basic criti- cisms should be raised about this dominant discourse.

A discipline that erects an elaborate logic on insecure foundations is prone to fundamental error. Such error is self-sustaining in the sense that the mathematical logic rather than the empirical accuracy of the theoretical structure becomes all-important.

So, we have to ask: Where did the central neoclassical notion of rational choice at the margin among perfectly known alternatives come from? Indeed, reduc- ing the consumption of poor people to marginal utility misses the daily drama of a life in poverty. With richer consumers, conspicuous consump- tion—a matter of taste, status, and aspiration—is the norm, not anything like marginal utility.

At the center of the contemporary global capitalist system, consumption comes as waves of desire for particular products— an iPod yesterday, a cellphone that does everything tomorrow—which is more a matter of advertising, crazes, whims, peer pressure, pop idols, cultural trends, and so on. Marginal utility tells us next to nothing about the bursts of demand that have driven the growth surges in economies. On the other side, the supply side, the notion of marginal productivity was not derived from asking entrepreneurs how they made decisions.

The conception of choice at the margin is not based on the inspection of economic reality or even a simplification of that reality. Smith To the neoclassi- cals, the mathematics of equilibrium theory was more important than the accuracy of representation. And indeed that proved to be the case. It was more important, for, with abstraction and mathematical sophistication, economics became the science of society.

This made economics the most powerful discipline of the social sciences. Economics is to social science what physics is to natural science.

But what if it is entirely wrong? Britain and the United States, the two countries that are supposed to have reached the very pinnacle of the world econ- omy through their free market, free trade policies, aggressively employed protections and subsidies.

However, Americans knew that Britain had succeeded through protection and subsidies and that their nation needed to do the same. And most of the rest of the advanced capitalist countries used tariffs, subsidies, and other means to promote their industries dur- ing the earliest stages—Germany, Japan, and Korea are well known in this respect, but also Sweden strategically used tariffs, subsidies, cartels, and state support for research and development to jumpstart its textile, steel, and engineering industries Chang In other words, marginal- ist neoclassical economics, like its classical predecessor, not only misrep- resented but also in fact reversed reality, in that it pretended that rational individualism acting through markets was the source of economic growth whereas in reality state policy produced growth.

The most pernicious aspect of all of this was J. Therefore, neoclassical economics stands indicted on two counts: 1 it is based on unexamined assumptions about human nature and eco- nomic behavior and therefore, while mathematically elegant, is a theo- retical fantasy subject to gross error; and 2 it is a fantasy theory out of touch with reality, reversing reality, a theory dreamed on behalf of the elite.

With minds full of unrealistic, biased theories like these, even sophisticated marginalist economists tended toward the bizarre when they left the abstract world of equilibrium to contemplate turbulent real- ity. So, Jevons of marginalist fame, seeing that both business and sun- spot cycles had average durations of In British and U. However, this was easily explained away, for savings were reinvested by individu- als or banks and contributed to growth.

In the marginalist tradition nei- ther growth nor depressions were relevant economic issues. The economy took care of itself. Markets worked. Then came , when economic reality thumped economic fantasy in the eye. Neoclassical economics had nothing to say, nothing that made sense at least. Neoclassical eco- nomics failed in the Great Depression of the s. Unfortunately it was not buried in the debris. Veblen differenti- ated between the rational, technical aspects of modern mechanized pro- duction and the business and entrepreneurial aspect.

The first, technical serviceability, produced useful products that satisfied needs; the second, business enterprise, favored chintzy products that would break or dis- please quickly, leading to replacement and greater profits for business. Veblen argued that pursuit of gain often caused unemployment, higher prices and costs, and delayed innovation. He thought that borrowing on the basis of anticipated earnings created business cycles of expan- sion and contraction that enabled large firms to swallow smaller ones.

Rather than focusing on class conflicts creating the dynamic of capital- ist history as did Marx , Veblen emphasized conflicts among three cul- tural tendencies: the machine process, business enterprise, and warlike or predatory beliefs. Business enterprise, he thought, would eventually fail, and the future system would either involve domination by engineers or a reversion to archaic absolutism under military domination Germany and Japan were cited as examples.

Veblen reversed the arguments of neoclassicism. The historical school was based in the German philosophical traditions of idealism and romanticism. The historical school also had an abiding interest in crisis and development. Other German econo- mists influenced by the historical school stressed the instabilities resulting from psychological factors in economic processes and the booms caused by erratic growth in the various sectors of an economy for example, steel, shipbuilding, and railroads growing unevenly.

The German his- torical school was empirical, looked at the very long term, and tended to be more critical of capitalism than neoclassical economics. A bitter debate between Schmoller and Menger in the s split German-speaking eco- nomics into antagonistic camps for decades—Schmoller thought that classical and neoclassical economics erred in finding universal laws, pre- ferred induction to deduction, and found naive the notion that people were motivated entirely by self-interest.

For Schumpeter, neoclassical eco- nomics took basic social variables as given and postulated that the play of self-interests in competitive markets would bring resource allocation into equilibrium—this was static analysis. Schumpeter argued that eco- nomic change was exactly the opposite: abrupt and discontinuous rather than smooth and orderly.

His own model saw innumerable exchanges constituting, in their totality, a circular flow of economic life Schum- peter Schumpeter was not interested in small changes, within the flow, that did not disrupt the existing system. Instead, he was fasci- nated by the truly dynamic development of economic systems, when the impetus for change came from within the economy endogenously , with effects that displaced the existing equilibrium.

Productive innovations could occur in five different ways: the introduction of a new or substantially different good; a new method of production not before tested; the opening of a new market; the conquest of a new system of supply of raw materials or semifinished goods; and a new organization of production, like the creation of a monopoly posi- tion.

Schumpeter thought that relatively few people in any society tried to change customary practices and introduce new things. Entrepreneurs were dynamic, energetic leaders distinguished by will rather than intel- ligence. Schumpeter thought further that creativity could not be predicted from previous facts, that creativity shaped the course of future events, and yet that creativity was an enigma.

Even so, economics had to deal with psychology and human motivation at a different level than everyday utilitarianism. Innovative investment was financed not by savings but by credit, with interest paid from the profits generated by innovation. Schumpeter saw the development initiated by innovation as uneven, discontinuous, and taking the form of business cycles, rather than causing deviations in a kind of dynamic equilibrium.

These business cycles could be short-term 40 months , medium-term 9—10 years , or long-term for example, the Kondratieff long waves of 50—55 years; Kuznets , which Schum- peter conceptualized as epochs with different values and civilizational characteristics.

In this view, economic change is not the result of slow movement from one equilibrium to another but rather is driven by the pursuit of the quasi-monopolistic profits that accrue to innovators. Eco- nomic change is propelled by the succession of technologies and practices that destroy old, inefficient arrangements as newer, more efficient, ones are created.

New ideas are frequently created by new firms: the busi- ness that builds the first railroad is seldom the business that previously operated the stage coaches Schumpeter New businesses develop new ideas that displace the old ones.

The particular level of employment in an economy, Keynes thought, was determined by the aggregate demand for goods and services. Assuming that the government had a neutral effect, two groups influenced this total demand: consumers buying consumption goods and investors buying production equipment.

Consumers increased spending as their incomes rose. But this was not the key to explaining the overall level of employment, for consumption depended on income, which depended on something else.

In the Keynes- ian system, real investment spending on new factories, tools, machines, and larger inventories of goods was the crucial variable: changes in real investment fed into the other areas of an economy, expanding the whole economy.

Investment resulted from decisions made by entrepreneurs under conditions of risk. Investment could be postponed. The decision to invest, Keynes said, depended on comparisons between the expected profits from the investment and the prevailing rate of interest. The cost of the capital used in investment, the interest rate, Keynes explained in terms of speculation about future stock prices, which in turn determined interest rates as savings moved from one fund to another.

The decision to invest also depended essentially on expectations about the future. The government could influence this process through interest rates and other monetary policies, shifting the economy from one equilibrium level to another, gen- erally to higher employment levels Moggridge The state also had to intervene through monetary and fiscal policies.

Subsequently, conservative Keynes- ian economists have seen monetary policy, especially the manipulation of interest rates, as a relatively nonbureaucratic, non-state-intrusive method by which the central bank of a country tries to influence national income and employment.

The basic idea is this: when an economy shows signs of moving into recession, the central bank Federal Reserve Bank in the United States, Bank of England in Britain, etc. Keynes proved theoretically what actual economic policy and recurring depressions had long shown in practice: free mar- kets do not spontaneously maximize human well-being.

Instead, the state has to intervene through demand management, changing the aggregate level of demand of a capitalist economy through monetary and fiscal policies. Keynes also pointed to the chaotic core of market-based deci- sion making, the utter uncertainty that haunts the capitalist imagination, uncertainty as a self-fulfilling prophecy, uncertainty that when spread widely can even cause depression. During the postwar period, Keynesian economics became the basis of growth theories promulgated by economists other than Keynes who died in , particularly in the design of policies that might maintain full employment.

Full employment and a better life were promises that all political parties, Republican or Democratic, Conser- vative or Labor, were forced to make to millions of soldiers returning from a war that saved the West. Particularly in west- ern Europe, political attitudes turned toward socialism or, more accu- rately, in a social democratic direction.

For example, the British working class ejected Winston Churchill, Conservative party hero of the war, to elect a Labor government committed to full employment, heavily sub- sidized state-run social services such as the National Health Service , educational reform scholarships for university students , and significant income redistribution achieved by taxing the rich and paying the poor family allowances, etc.

Also, in many countries outside the United States, under social democracy the state directed what remained a basi- cally capitalist economy with key industrial sectors transportation, mines, steel, chemicals nationalized—that is, owned and run by state corporations.

This was not merely because workers spent any income redistributed to them and therefore kept the economy going in a Keynesian sense. It was also because they deserved higher incomes and free social services, for in the socialist view the people, as workers, are the producers of value and income, while labor creates growth.

In Britain, the Beveridge Report of resulted in a comprehensive system of social security and a National Health Service that provided free health care after the end of World War II. By comparison, the United States was never fully social democratic. During the postwar period of Keynesian dominance, econom- ics focused much more on economic growth than it had in the past— growth being seen as the source of progress.

In the Harrod—Domar model—named for its originators, economists Roy Harrod — and Evsey Domar — —increasing economic growth basically involved increasing the savings rate of a country, in some cases through the state budget, and using the resulting saved funds to invest in the growth of the economy.

To do this, the state needs to encourage savings and generate technological advances that enable firms to produce more output with less capital that is, lower their capital— output ratio. Harrod used several concepts of economic growth in this analysis: warranted growth, natural growth, and actual growth. The war- ranted growth rate is the growth rate at which all savings are absorbed into investment. The natural growth rate is the rate required to maintain full employment.

First, actual growth was determined by the rate of savings, while natural growth was determined by the growth of the labor force.

This problem resulted from his overly simple assump- tions that the wage rate is fixed and that the economy must use labor and capital in the same proportions. If companies adjusted their investment according to their expectations of future demand, and the anticipated demand occurred, warranted growth would equal actual growth. But if actual demand exceeded anticipated demand, they would have under- invested and would respond with further investment.

This investment, however, would itself cause growth to rise, requiring even further invest- ment, resulting in explosive growth. But if the reverse happened, with actual demand falling short of anticipated demand, the result would be a deceleration of growth.

Solow said that there must be some market mechanism that brings an econ- omy back to equilibrium and the warranted growth rate when it devi- ates from them. Solow found this assumption inconsistent with neoclassical economics.

When firms have excess capacity excess investment , they substitute labor for capital—Solow essentially modified the Harrod—Domar model to allow neoclassical factor substitution in production. According to Solow, there can be stable equilibrium growth if the growth model is set up with this correct neoclassical assumption. Solow tried three production functions and picked one the Cobb—Douglas production function because it theo- retically generated stable equilibrium.

Solow argued that there exists a rate of investment—balanced investment—that keeps the growth of the capital stock equal to the growth of the labor force. If actual investment exceeds balanced investment, the amount of capital per worker grows until it reaches a level consistent with full employment—what Solow called the steady-state point. Hence, Solow showed that the neoclassical growth model is stable.

It has the self-adjusting mechanism that guaran- tees a return to equilibrium. From Keynesian Economics to Neoliberalism 61 But Solow showed that half of economic growth in the United States cannot be accounted for just by increases in capital and labor. Basically, Solow argued that an economy with a higher savings ratio experiences higher per capita production and thus higher real income.

But in the absence of techno- logical progress the rate of growth is purely dependent on an increased supply of labor. As a result, technological development has to be the motor of economic growth in the long run. Robert Solow is one of the major figures of the neo-Keynesian synthesis in macroeconomics.

The Solow model greatly affected the policy recommendations of econo- mists during the s and s. Let us follow this trajectory in economic thought to the present. The economist Paul Romer countered this by constructing mathematical representations of economies in which technological change is the result of the intentional actions of people, such as in research and development.

The source of economic progress is ideas. New growth theory tries to make sense of the shift from a resource-based economy to a knowledge- based economy. Higher living standards result from steadily improving knowledge of how to produce more and better goods and services with ever smaller amounts of physical resources.

A view of the space economy of deveopment follows from this approach. Idea creation, new business development, and economic change happen in specific places. Spillovers also happen in particular places, with the result that the new growth theory has impli- cations for the geography of economic activity. As we saw in Chapter 2, Alfred Marshall made the connection between knowledge spillovers and local economic development.

Dense clusters of small firms, typically located in a single community, competed successfully in international markets by specializing in the production of certain products, like tiles, fashion apparel, and industrial machinery.

Studies of the development of these districts stressed the strong networks, social linkages, and information flows among producers Piore and Sabel There are two types of knowledge: codifiable knowledge, which can be written down; and tacit knowledge, learned from experience and not easily transmittable from one individual to another M.

Polanyi Because tacit knowledge is embedded in the minds of individuals and the routines of organizations, it does not move easily from place to place. Similarly, a base of tacit knowledge is frequently a prerequisite for making use of any particular bit of codified knowledge.

So, place still matters in development. New growth theory has implications for economic development policy. It stresses that creating new knowledge is the key driver behind economic growth, for the economy as a whole and for particular areas. It also emphasizes the role that institutions and policies can play in creating conducive circumstances for innovation and the diffusion of knowledge. New growth theory suggests five broad strategies for govern- ments: 1.

Economic strategies should focus on creating new knowledge in universities and laboratories and by businesses. States and communities are not powerless to influence their eco- nomic destinies. The path-dependent quality of growth means that the possibili- ties of future growth depend, in large part, on the current local base of knowledge and expertise, which communities should try to enhance. Ideas of all kinds, large and small, play a role in economic growth: innovation by front-line workers is as important to the knowl- edge economy as scientific research.

Knowledge-based growth can stimulate a self-reinforcing cycle in which faster growth triggers additional knowledge creation and more growth Cortright The state was heavily involved in infrastructure development, as with the railroad and telegraph system. Infant industries were protected by tariffs placed on imports of competing products, while raw material imports were subsidized. MITI and the Ministry of Finance were able to use control over domestic savings to provide cheap credit for particular industries chosen for emphasis by the state.

The author of numerous articles, book reviews, and books, Dr. Peet is editor of a new radical journal, Human Geography. Elaine Hartwick is Associate Professor of Geography at Framingham State College in Framingham, Massachusetts, where she teaches courses in political, cultural, and regional geography and global development.

She has published on a variety of topics, including commodity chains, consumer politics, social theory, and development geography, with a regional specialization in Southern Africa.

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