Development Theory and Latin American Political Economy February

Development Theory and Latin American Political Economy February 2

Overview n n n n Colonialism Independence Liberal Era Structuralist Economics and ISI Modernization Theory Dependency Theory ‘Washington Consensus’ The Developmental State

Colonialism and Mercantilism n n n Spain and Portugal colonized Latin American in the early 1500 s. The Spanish and Portuguese colonies in the Americas were sources of precious metals and natural resources. Most of these colonies fought for and achieved independence in the 1820 s.

The Liberal Era n Generally, the period from the 1880 s to the 1920 s was one of economic liberalism in Latin America. n Latin American countries continued to export natural resources, but now to Britain and increasingly to the United States.

Structuralist Economics n n n In the late 1940 s, Raúl Prebisch and Hans Singer argued that developing countries reliant upon exports of primary commodities and imports of manufactured goods faced declining terms of trade. Therefore, Third World countries would need to transform the structure of their economies and develop the industrial sector relative to the primary sector. Third World states would have to encourage industrialization.

Import Substitution Industrialization (ISI) n Latin American countries began to implement ISI policies during the depression of the 1930 s, the more systematic development of the ISI strategy emerged after WWII.

Modernization Theory n n Modernization theorists perceived development as a standard process that all countries follow (from ‘traditional’ societies to ‘modern’ societies). Third World countries were following the same path of development taken by the First World, but were merely at an earlier point or stage of development. First World countries could assist development through aid, investment and technology transfers. Third World countries needed to improve educational levels and adopt the appropriate cultural values (such as the profit motive) to facilitate development.

Dependency Theory n n While modernization theory depicted the First World as a benevolent force, dependency theory depicted the First World as hindering development in the Third World. The capitalist states of the First World worked in alliance with Third World elites to maintain the Third World in a subordinate position.

André Gunder Frank “The Development of Underdevelopment” Monthly Review, (1966). n “most of our theory fails to explain the structure and development of the capitalist system as a whole and to account for its simultaneous generation of underdevelopment in some of its parts and economic development in others”

André Gunder Frank (1966) n n “underdevelopment is not original or traditional…neither the past nor the present of the underdeveloped countries resembles in any important respect the past of the now developed countries. The now developed countries were never underdeveloped, though they may have been undeveloped. ” “contemporary underdevelopment is on large part the historical of past and continuing economic and other relations between the satellite underdeveloped and the now developed metropolitan countries” “present underdevelopment of Latin America is the result of its centuries -long participation in the process of world capitalist development” “underdevelopment was and still is generated by the very same historical process which also generated economic development: the development of capitalism itself”

The ‘Washington Consensus’ n n The economic slowdown of the 70 s and then the debt crisis of the early 80 s discredited ISI and facilitated the emerging dominance of free market (neoclassical or neoliberal) ideas. The IMF and World Bank imposed structural adjustment programs (SAPs) on Third World countries.

The Developmental State Model n n During the 1970 s and 80 s, the emergence of the Newly Industrializing Countries of Asia (South Korea, Taiwan, Singapore, Hong Kong) attracted much attention and debate. Free-market advocates pointed to these countries as successful examples of export-oriented development. Critics of the free-market pointed to these countries as successful examples of state-led development. Even the international financial institutions came to emphasize the importance of ‘governance’ and ‘state capacity’.

Economic Paradigms and Crises in Mexico n n n Mexico embraced ISI beginning in the 1930 s and experienced impressive economic growth and industrialization. However, it experienced a major economic crisis in the early 80 s. In the aftermath of the debt crisis, Mexican governments embraced neoliberalism. However, it experienced a major economic crisis in 1994. Like the rest of the world, Mexico felt the impact of the global recession in 2008.