Anthropology Archive

Development Three historical phases

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Any periodization of economic or intellectual history is useful primarily as a heuristic tool. Thus we sketch here three historical phases simply to signal some benchmarks in thinking about development.11 In addressing both historical trends and theories - broad global changes and paradigm shifts - we emphasize the latter, with brief suggestions about how historical trends and theories influence one another.

Notions of development can be traced back at least to the late-18th-century rise of industrial capitalism, which "for the first time allowed productive forces to make a spectacular advance,'' thus permitting people to imagine dramatic material progress (Larrain 1989:1). Development in late-18th- and 19th-century Europe "was meant to construct order out of the social disorders of rapid urban migration, poverty and unemployment'' (Cowen and Shenton 1996:5). Our first phase of development thought thus includes attempts to understand the rise of capitalism in the 15th and 16th centuries, and the startling changes associated with the emergence of industrial capitalism in the late 18th century. These transformations helped to inspire the teleologies noted earlier, together with conceptions of a ''universal history,'' including Enlightenment, Hegelian, Marxian, and other notions of progress. Indeed, development was seen by some (such as Comte) in the late 19th century as reducing the "disordered faults of progress'' (Cowen and Shenton 1996:7), though for many in that era "the idea of development provided a way of narrating world history, but not necessarily a rationale for acting upon that history'' (Cooper and Packard 1997:7).

The 18th- and 19th-century intellectual traditions of the first phase of development thought were seldom acknowledged in most of the second period,12 which saw the emergence of a much narrower development theory in the 1950s to deal with ''how the economies of the colonies of Britain, France, Portugal and other European powers, colonies comprising some 28% of the world's population, might be transformed and made more productive as decolonisation approached'' (Leys 1996:5). Both the terms ''development'' and ''underdevelopment'' were invented well before World War II (though their visibility waxed and waned and their precise meanings changed), and neither was originally seen as ''part of a new imperial project for the colonial and post-colonial 'Third World''' (Cowen and Shenton 1996:7, 366).

A key precursor to this second period was the 1944 establishment of the Bretton Woods financial institutions (International Monetary Fund and World Bank), together with a system of fixed currency exchange rates, limitations on capital movements across national boundaries, and the institutionalizing of national economic planning to promote growth. The idea of development here was strongly influenced by John Maynard Keynes, the chief British delegate to the Bretton Woods Conference and an advocate of public spending as an engine of growth and source of employment. This approach to development underlined the centrality of state sovereignty, as national governments - initially in war-ravaged Europe and soon after in Asia, Africa, and Latin America - pledged to improve the material circumstances of their citizens. The supranational finance and governance institutions (World Bank, IMF, UN) were to assist nation-states in the development quest. While after 1980 the IMF and World Bank became forceful proponents of trade and financial liberalization, before then their stance was distinctly unliberal, at least as regards finance and the role of the public sector (Helleiner 1994:164-165). This pre-1980 position took for granted and indeed encouraged extensive state intervention in the economy, whether this meant controlling exchange rates, subsidizing investment and consumption, or building infrastructural mega-projects such as hydroelectric and irrigation schemes, highways or modern port facilities.

Development took on new visibility as an effort to reduce world poverty after the 1944 Bretton Woods Conference and the end of World War II, and especially after Harry Truman's 1949 inaugural address, which proposed using US scientific and technological expertise to stimulate growth and raise living standards in "underdeveloped areas.''13 Policy theorists and planners rethought unequal relationships between rich and poor nations, and the development dream ''colonized reality'' (Escobar 1995:5).14 Or as Hart (1992:215) put it, ''The protagonists of the cold war designated the poor remainder of humanity 'the Third World' and gave the name 'development' to their economic predicament.'' A new generation of technocrats increasingly viewed poverty alleviation not as an outcome of ''self-regulating processes of economic growth or social change'' but of concerted action by both rich and poor nations working in cooperation with new international aid agencies and financial institutions (Cooper and Packard 1997:1). In a later path-breaking study, anthropologist James Ferguson (1990) portrayed these development institutions as an ''anti-politics machine'' that could only cast development problems in apolitical, ahistorical, techno-managerial terms - disguising the profound political questions at stake in common interventions in agricultural, health or education programs.

A third development phase begins in the 1970s with the breakdown of the Bretton Woods controls on capital movements (and a consequent weakening of states' capacities to promote national development), the 1971 termination of currency exchange rates fixed to a gold value through the US dollar, and - in the late 1970s and 1980s - a series of policy changes that were known (outside the United States) as economic neoliberalism. (Inside the United States, the new economic status quo was so taken for granted - so naturalized by institutions of power - that it was seldom labelled or debated at all [Korten 2001:78]).15 What the rest of the world terms "neoliberalism" or "liberalism" - that is, doctrines or policies that accord the market rather than the state the main role in resolving economic and other problems - is typically considered "conservative" in the United States. Or put another way, in the United States neoliberalism is a blend of neoclassical economics and political conservatism.

In the 1970s, the World Bank, under Robert McNamara's leadership, shifted its focus from economic growth per se to poverty and equity issues. At the same time the US Agency for International Development began to emphasize poverty, basic human needs, and the equitable distribution of the gains from economic growth. However, skyrocketing petroleum prices, rising interest rates, and slowing economic growth forced many poorer countries, particularly in Latin America, to assume greater debt burdens. The 1980s debt crisis16 was accompanied by diverging economic growth rates among Third World states and the emergence of the newly industrialized countries (NICs) - most notably the "Asian tigers'' of Taiwan, South Korea, Singapore, and Hong Kong - as success stories. Rapid growth among the NICs (sometimes termed "NIEs" or "newly industrializing economies'') was originally attributed to free-market policies, and occasionally to "Confucian culture,'' but later was recognized as the outcome of state subsidies and protectionism, radical agrarian reforms that contributed to building prosperous rural middle classes, and US concessions motivated by geo-political concerns (Castells 2000:256-299). The NICs received few loans from international financial institutions and only modest amounts of foreign aid.

During the 1980s and 1990s, the World Bank and International Monetary Fund promoted in poorer nations a key set of reforms known as structural adjustment. In contrast to these institutions' stance during their first three decades of existence, these programs sought to reduce the state role in the economy, and called for reductions in state expenditures on social services such as education and health care, introduction of user fees for such services, trade liberalization, currency devaluation, selling off of state-owned enterprises, and financial and labor market deregulation. The rationale for such policies is set forth particularly clearly in the highly visible 1981 World Bank publication known as the "Berg report'' on African development (World Bank 1981).

By the mid-1990s, however, the World Bank was modifying these structural adjustment policies. Continuing debt problems prompted the Bank to develop social investment programs targeted at poor sectors hit hard by adjustment policies, as well as conditioned debt relief programs for a subset of nations it termed "heavily indebted poor countries'' (HIPC), most of which were in Africa. The latter shift reflected in part the beginning of a breakdown of the "Washington Consensus'' (see below), the neoliberal orthodoxy that had held sway in the international financial institutions and in many developing-country governments. The 1996 Heavily Indebted Poor Countries initiative taken by the G-7 countries in the face of heavy pressure from the Jubilee 2000 debt-forgiveness movement, the 1997 Asian financial crisis, and growing evidence of the shortcomings of orthodox neoliberalism all contributed to this unravelling. The intellectual hegemony of the

"Washington Consensus'' crumbled in the mid- to late-1990s as several of its prominent architects - including a former World Bank vice-president - launched scathing criticisms of the impact of structural adjustment policies on the economies and living standards of the poorer countries (Stiglitz 2002; Sachs 1999; Soros 2002).

In just three decades, the official aims of world development efforts had been dramatically lowered - from the 1960s notion, associated with W. W. Rostow (see below), of catching up to the consumption levels of industrialized countries, to the more modest early 1970s aim of redistribution with growth, then the late-1970s program designed to meet the basic needs of the poor (with no expectation of equity with wealthier nations), and finally by the 1980s, fiscal austerity under structural adjustment programs that often sacrificed the basic needs of the poor (Leys 1996:26). By the late 1980s, Leys (1996:26, 24) argues, the recently expanded powers of global capital markets over national economies, together with other world economic changes, signalled that'' 'development theory' was in deep trouble''; indeed, "the only development policy that was officially approved was not to have one - to leave it to the market to allocate resources, not the state.''17 The latter position of free-market universalism, once held only by a dissenting minority, had become predominant in much of the world by the late 1980s.18

When fractures appeared in this dominant ''free-market'' approach, some mainstream economists distanced themselves from its more extreme versions. Thus John Williamson, who invented the term "Washington Consensus'' in 1989, later attempted to refine the paradigm, subtly separating the original set of policies addressed by Washington-based institutions such as the World Bank and IMF on the one hand, and neoliberal or market fundamentalist policies on the other (Williamson 2002). Williamson (2002:252) distinguishes the so-called Washington Consensus policies from state minimalism or ''an extreme and dogmatic commitment to the belief that markets can handle everything.''19 He rejects the idea that the latter approach is effective for reducing poverty (especially for the poorest countries), and he notes that by the early 21st century, the World Bank endorsed a "wider array of antipoverty instruments than was able to command a consensus in 1989'' (Williamson 2002:259).20

Innovative economists such as Ilene Grabel and Ha-Joon Chang (2004), on the other hand, argue that it is misleading to think that the architects of the Washington Consensus have moved to a post-neoliberal position. Instead, Grabel and Chang suggest, mainstream economists such as Williamson attempt to save the Washington Consensus by modifying a few key policy prescriptions (for example, recognizing that liberalization of capital flows can lead to financial crisis). Grabel and Chang's book Reclaiming Development refutes myths about neoliberal development such as the claim that it promotes economic growth, that it accounts for the historical success of today's wealthy nations, that the latter nations converge on a single economic model, and that the Anglo-American policy model is universally applicable but the successful East Asian model cannot be replicated. In contrast to the revisionist architects of the Washington Consensus, Grabel and Chang (2004) aim to be part of a dialogue about real post-neoliberalism, and thus offer a range of alternatives to such policies (see also DeMartino 2000 and ILO 2004).

How have the world's poor fared during the past several decades of official development efforts? Positive indicators include an increase in world GNP from $1.3 trillion in 1960 to nearly $30 trillion by the late 1990s, and during the same period a 50 percent increase in the rate of school enrolment, a rise of 17 years in life expectancy in poor countries, and a 50 percent drop in child mortality worldwide (Nolan 2002:223). Nonetheless, at the end of the 20th century, over 840 million people were undernourished, and nearly 1.3 billion lived on the equivalent of less than one dollar per day (FAO 2003:6; UNDP 1999:22,28). A halfcentury after the emergence of the narrow version of economic development theory that was to lift decolonizing nations out of poverty, and four decades after colonial rule ended in much of the Caribbean, Africa, and the Pacific, "developing'' nations accounted for some four-fifths of the world's population (Leys 1996:5). Between 1950 and 1990, as the world's population doubled, so too did the number of people living in poverty (Nolan 2002:223).

Global economic inequality increased dramatically between 1960 and 1990: in 1960, the wealthiest 20 percent of the world's population received 30 times the income of the poorest 20 percent; in 1997, the richest 20 percent received 74 times as much (UNDP 1999:36). By the late 20th century, the world's 200 wealthiest individuals had assets equal to more than the combined income of 41 percent of the world's population; the assets of the three richest people were more than the combined GNP of all least developed countries (UNDP 1999:38). Debt levels as a percentage of export earnings in poor nations doubled between 1970 and 1986, and by 1986 more money flowed to the West in debt repayments than went to the Third World in loans and investments (Nolan 2002:54). In the late 1990s, Tanzania, for example, was spending one-third of its national budget on debt repayment -four times what it spent on primary education (Nolan 2002:56). Nicaragua's 1991 foreign debt was more than five times its GDP and its annual debt service more than twice its export earnings. Fully 43 percent of the foreign aid it received went for payments on the debt (Robinson 1997:34-35). Numerous other "developing'' countries found themselves in a similar economic straightjacket. By the late 1980s, such trends led to pronouncements that the development process had been reversed (Portes and Kincaid 1989:489), and survival rather than development had become the "economic imperative of the day'' (Hart 1992:219).

The British news weekly the Economist offers a counter-narrative to this picture of growing global poverty and worsening economic inequality.21 That publication highlights several difficulties in assessing economic inequality trends: how to measure what people in poor nations actually consume (i.e., living standards),22 how to value consumption in a way that allows meaningful comparisons across countries and over time, and how to define an appropriate basis of comparison (this is what economists often call adjusting per capita GDP for "purchasing power parity'' or PPP). The Economist (2004:70) cites statistical studies based on national-accounts data, which it says show declining poverty in the 1980s and 1990s. By contrast, the more widely cited estimates (used by the UN and World Bank, for example) are based on direct surveys of households and show little or no decline in poverty in recent decades. Economists find combining the national-accounts and household-survey data to be technically challenging, and hope eventually to produce more accurate figures.

Yet any statistics lend themselves to alternative manipulations and interpretations. For example, both the time period under analysis and the figure taken as the poverty baseline make a big difference, as World Bank functionary Martin Ravallion notes in his reply in a subsequent issue of the Economist. In the late 1980s and early 1990s, for instance, conditions worsened for the world's poor. But if a two-decade window and the frugal $1-a-day standard are used, the World Bank estimates that "the world poverty rate fell from 33% in 1981 (about 1.5 billion people) to 18% in 2001 (1.1 billion).'' On the other hand, when judged by the $2-a-day standard, the Bank estimates that the number of people living in poverty increased from 2.4 billion to 2.7 billion between 1981 and 2001. And of course those who managed to move beyond the $1-a-day standard remain poor "even by the standards of middle-income developing countries'' (Ravallion 2004:65). Furthermore, all of these figures show sharp regional differences in poverty trends. Although the number of people living on less than $1 a day in Asia has fallen during the last two decades, the number in that category in Africa has roughly doubled. During the early 1980s, "one in ten of the world's poorest lived in Africa''; two decades later the figure was about one in three

(Ravallion 2004:65). Few would deny the challenges of collecting reliable global economic data, and it is clear that statistics can be manipulated to support a variety of positions. Yet visible poverty is widespread and solutions - not just better statistics - are urgently needed.

Official foreign cooperation (termed "aid'' in the United States) declined worldwide during the 1990s, dropping from about $60 billion in the early 1990s to about $55 billion in 1999 (Nolan 2002:225). The US contribution to these amounts fell sharply - from over 60 percent of the total in the mid-1950s to 17 percent by 1998 (Nolan 2002:228). In 1947, at the start of the post-World War II Marshall Plan, US foreign aid as a percentage of GDP was nearly 3 percent, while by the late 1990s it was a mere 0.1 percent - the lowest of any major industrialized nation (Soros 2002:17).23 Among bilateral aid donors, only Japan has substantially increased its development aid during the past two decades. While official aid flows have diminished, private direct investment in developing countries has increased, rising to more than three times the dollar amount of official aid by 1997 (Nolan 2002:231). Such private investment is very unevenly distributed, with much of it going to Asia and most African countries receiving little.

Whatever the practical ambitions of the last fifty years of development theory, poverty remains widespread and remedies are still elusive. In the late 20th century, this stark reality contributed to widespread disillusionment with those agents (such as the World Bank, International Monetary Fund, bilateral aid agencies, and national governments) to which the responsibility for development was entrusted (Cowen and Shenton 1996:4). Yet none of the alternative trustees, such as NGOs, communities, or grassroots social movements, have proven to be effective substitute agents for humanizing markets, alleviating poverty, or ensuring equity and social justice. But before we consider this dilemma, let us review some 20th-century development debates.

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