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Development POS 304 unannounced in-class writing assessment • You will have 12 minutes to answer the question. • No word limit. • CLOSED BOOK: Only blank sheets, pens/pencils and your student IDs on your desks. • No talking. No electronics. • Write your ID #s, ‘POS 304’ and ‘23 Nov.’ on your sheets now. • Tear the sheets out of your notebooks now. I will collect them at the end. Question • According to Easterly, what is wrong with Chang’s argument? Progress? Realism • issues of power and influence • tend to ignore the economic interests of poorer countries in the South. • it is only when LDCs pose a challenge to the North’s dominance that most realists take notice. • 1970s realist scholars looked at OPEC’s increased leverage in raising oil prices and at LDC efforts to gain more power and wealth through an NIEO; • in the 1980s and 1990s, realists focused on the challenge East Asia’s developmental state model posed to the North; • and today realists are more interested in emerging powers such as China, India, and Brazil. • Despite the inattention of realists to poverty in the South, realist ideas have had considerable influence on LDC policies. • Alexander Hamilton and Friedrich List Liberalism • LDC economic problems stem more from inefficient domestic policies than from their dependent position in the global economy. • North– South interdependence providing even more benefits for the South than for the North. • LDCs that follow open economic policies and increase linkages with the North are more likely to achieve successful development. • interventionist liberals call on the North to consider the special needs of the South. Historical materialism • Dependency theory: capitalist states in the core of the global economy as either “underdeveloping” LDCs in the periphery or preventing them from attaining genuine, autonomous development. • World-systems theorists: the semi-periphery, to explain the fact that some LDCs such as East Asian and Latin American NIEs were industrializing. Development assistance • grants, loans, or technical assistance • concessional terms. • Concessional loans: interest rates, grace periods, and repayment periods. • ODA: grant element Is ODA effective? • LDCs acquire much more revenue from private capital flows and merchandise exports. From 1990 to 1996 private international finance to LDCs increased to more than six times ODA flows. • Remittances also surpass ODA flows to middleincome LDCs. The World Bank estimated that remittance flows in 2005 amounted to $ 250 billion (U.S.). • However: most private capital to LDCs goes to China and about 10 other East Asian and Latin American countries. • J. Sachs: “the extreme poor are caught in a poverty trap” because of “disease, physical isolation, climate stress, environmental degradation, and … extreme poverty itself,” and their governments “lack the financial means” to extricate themselves. • Sachs recommended a doubling of aid in 2006 and almost another doubling by 2015. The increased ODA would help “to jump-start the process of capital accumulation, economic growth, and rising household incomes.” • Easterly: many LDCs have prospered without large amounts of foreign aid, and aid does not necessarily promote development. • Although “the typical African country received more than 15 percent of its income from foreign donors in the 1990s,” this “surge of aid was not successful in reversing or halting the slide in growth of income per capita.” • aid can sometimes be useful as part of a piecemeal, bottom-up approach to development • criticizes the top-down planning approach of most large development agencies, and he attributes LDC problems more to corruption and bad government than to a lack of foreign aid. • Dambisa Moyo: “millions in Africa are poorer today because of aid; misery and poverty have not ended but have increased.” • aid promotes corruption and detracts from development • Africa can benefit more from the financial markets, promotion of exports, and investment from China. The World Bank Group • largest lender of multilateral funds for international development • also has influence as a rating agency for others: lending decisions, data collection, and analyses • important coordinating function because aidgiving is so fragmented today • contributes to the evolution of ideas • International Bank for Reconstruction and Development (IBRD) was planned at the 1944 Bretton Woods conference. • weighted voting institution: 2008 GFC • Members pay 10 percent of their subscriptions to the IBRD. • world capital markets • The International Finance Corporation (IFC) became the second Bank group institution in 1956 • largest multilateral source of loans and equity financing for private-sector projects in the South. • The International Development Association (IDA), the third Bank group institution, was formed in 1960 • The IDA provides soft loans or “credits” to LDC governments with no interest, 10-year grace periods, and 35- to 40-year maturities. • The other two Bank group institutions— the International Center for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA)— encourage the flow of private foreign investment to LDCs and transition economies. • The ICSID, formed in 1966, provides facilities for conciliation and arbitration of investment disputes. • The MIGA, formed in 1988, provides guarantees to foreign investors for noncommercial risks, such as currency inconvertibility, expropriation, war, and civil disturbances, and helps LDCs and transition economies inform others of investment opportunities. The United States is the most important Bank member • votes • English • Bank president • US influence has declined Critics • Historical materialists • Liberals Development Strategies ISI • Raúl Prebisch • decrease emphasis on primary products and focus on industrialization • 1950s– 1960s LDCs in Latin America, Asia, and Africa • World Bank generally supported ISI during the 1950s • Initially, ISI provided some major gains for the South. For example, Latin America had healthy industrial growth rates in the 1940s– 1950s, and India’s steel production increased by six times from 1951 to 1966. • serious problems developed with ISI in the 1960s– 1970s: global food crisis in the 1970s, OPEC oil prices in 1973, dependence on the North, industrial competitiveness. • Prebisch: “the proliferation of industries of every kind in a closed market has deprived the Latin American countries of the advantages of specialization and economies of scale.” • protectionist domestic groups Socialist strategies • Eg: China, North Korea, Cuba, Ethiopia, Mozambique, Tanzania, Vietnam, Laos, Cambodia, and Burma • health care and education, status of women • more successful in setting production targets and increasing output than in ensuring the quality of output and the efficient use of resources. The East Asian NIEs • South Korea, Taiwan, Singapore, and Hong Kong adopted export-led growth strategies. • In the 1950s Taiwan and South Korea had adopted ISI policies, • followed Japan’s example in the 1960s and shifted to an export-oriented policy. • While maintaining moderate protection of domestic producers, they promoted industrial exports with tax incentives, export credits, and duty-free imports of inputs required by exporters. • also abandoned minimum wage legislation to encourage increased employment in export-oriented industries. • South Korea’s GDP grew at an average annual rate of more than 8 percent during the 1960s, and its exports rose from $ 31 million in 1960 to $ 882 million in 1970. By the late 1980s, Taiwan and South Korea were the tenth and thirteenth largest world exporters of manufactures, respectively. • Early 1980s: Southeast Asian economies such as Malaysia, Indonesia, and Thailand also switched to export-led growth strategies. Interpretations What is the best path to development?