Michael Hudson on underdevelopment

Taken from Michael Hudson’s iconoclastic ‘dictionary’ J is for Junk Economics (p.237):

“Underdevelopment: A term coined by the economic historian and sociologist Andre Gunder Frank (1925-2005) to describe the policies by which Europe’s colonies and subsequent Third World countries have been turned into indebted raw-materials exporters instead of balanced economies capable of feeding themselves and remaining free of foreign debt and its associated loss of sovereignty. The term implies that they will follow the same pattern as “developed” economies. But they are misshapen, often supported by violent creditor oligarchies. This maldevelopment is euphemized by stages of growth theory suggesting that malstructured economies need simply “wait their turn” to develop in a healthy way. Locked into debt-dependency on the leading financial nations, they are forced to adopt neoliberal anti-labor policies and relinquish their public domains to rent-seeking monopolists. This is the opposite of the US- and European-style protectionist drive to ensure economic self-sufficiency in food and basic industry.”

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Governance reform and development: a heterodox view – Part 2

Following yesterday’s post, here are the final two parts of the discussion on governance reform and development by Mushtaq Khan, Professor of economics at SOAS in London.

Governance reform and development: a heterodox view

Today and tomorrow, I will be posting a series of short videos discussing the relationship between governance and development. So-called ‘good governance’ covers such factors as support for the rule of law, anti-corruption and effective democracy, which I think most people would agree are desirable, but are usually missing in the poorest countries.

Professor Mushtaq Khan of SOAS discusses how, in contrast to the ‘good governance’ agenda of the World Bank, these desirable factors have historically been the outcome of successful development rather than its cause.

Instead of policymakers in poor countries trying in vain to achieve good governance, they should instead try to promote developmental governance, which would enable their economies to successfully grow and develop and to some extent ‘catch up’ with their richer neighbours. This would then create the conditions for good governance to be more easily promoted and sustained. Continue reading

Oil and industrial policy in Venezuela: what went wrong?

Nodding-Donkey-pump-Venezuela-By-Rjcastillo-CC-BY-SA-3.0Marxist economist Michael Roberts recently posted on the dire economic and social situation in Venezuela. An oil price boom in the 2000s allowed the government of Hugo Chavez to pour the resultant tax revenues into boosting the incomes and welfare of the poor. Significant progress was made with poverty reduction during this period and the economy grew relatively rapidly for a number of years.

All that is now going into reverse as the economy experiences a deep contraction, galloping inflation, and shortages of basic goods in the shops, alongside a consolidation of anti-democratic forces. With oil prices subdued and a lack of industrial diversification, the sources of any future economic recovery remain unclear.

As he has often argued when confronting the downsides of capitalism, Roberts argues that the problem is ‘not enough socialism’. His favoured policy response would be increased government ownership and direction of the economy via central planning, in order to boost investment and diversify the structure of the economy.

The intended ends of such a response are indeed laudable: during the boom years, the government relied on oil revenues to reduce poverty, as already mentioned. But it failed to encourage the diversification of production into higher value-added goods and services. Continue reading

Africa is not destined for underdevelopment (Ha-Joon Chang’s Thing 11)

23-things-they-don-t-tell-you-about-capitalismAnother post in this occasional series of excerpts from Cambridge development economist Ha-Joon Chang‘s excellent 23 Things They Don’t Tell You About Capitalism (p.112-3, 124):

“Africa has not always been stagnant. In the 1960s and 70s, when all the supposed structural impediments to growth were present and often more binding, it actually posted a decent growth performance. Moreover, all the structural handicaps that are supposed to hold back Africa have been present in most of today’s rich countries – poor climate (arctic and tropical), landlockness, abundant natural resources, ethnic divisions, poor institutions and bad culture. These structural conditions seem to act as impediments to development in Africa only because its countries do not yet have the necessary technologies, institutions and organizational skills to deal with their adverse consequences. The real cause of African stagnation in the last three decades is free-market policies that the continent has been compelled to implement during the period. Unlike history or geography, policies can be changed. Africa is not destined for underdevelopment.

…[W]hat appear to be unalterable structural impediments to economic development in Africa (and indeed elsewhere) are usually things that can be, and have been, overcome with better technologies, superior organizational skills and improved political institutions. The fact that most of today’s rich countries themselves used to suffer (and still suffer to an extent) from these conditions is an indirect proof of this point. Moreover, despite having these impediments (often in more severe forms), African countries themselves did not have a problem growing in the 1960s and 70s. The main reason for Africa’s recent growth failure lies in policy – namely, the free-trade, free-market policy that has been imposed on the continent through the Structural Adjustment Programs. Nature and history do not condemn a country to a particular future. If it is policy that is causing the problem, the future can be changed even more easily. The fact that we have failed to see this, and not its allegedly chronic growth failure, is the real tragedy of Africa.”

I am broadly sympathetic with Chang’s argument, but he avoids a deeper exploration of the politics of development. It is all very well to say that bad policy is the cause of underdevelopment, but why do bad policies persist? The answer to this lies at the interface between politics and economics, namely in a political economy analysis.

Economic trends influence the distribution of power in society between particular interest groups, and this in turn has an effect on the choice of policies and institutions, and their subsequent success or failure. I will discuss the implications of this for development in future posts, focusing this week on Venezuela, which has been much in the news recently, for all the wrong reasons both economically and politically.

Geoffrey Hodgson on the needs of current economics

A short but useful interview with Professor Geoffrey Hodgson, whose politics blog can be found here, on the needs and potential development of the current discipline of economics. Hodgson’s work draws great inspiration from the Institutionalist tradition of Thorstein Veblen, which should be distinguished from the more mainstream theory of New Institutional Economics.