Comparative Politics of Development

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Comparative Politics of Development

• Why are some states poor?

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I. The Development Paradox How can wealth become
poverty and poverty become wealth?

1. Poor countries in 1000 become rich ones later.
   Why dont China and India rule the world?

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Rise of the West

• In 1750, China and India were the largest
  producers of manufactured goods (including
  crafts), accounting for more than half of global
  manufacturing.
• The countries that would later constitute the
  Third World accounted for 73 of global
  manufacturing, including crafts.
• But by 1913 the Third World accounted for only
  7.5 of global manufacturing.

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World Wealth, Year 1
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World Wealth, Year 1900
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World Production, 1500-2000
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I. The Development Paradox How can wealth become
poverty and poverty become wealth?

1. Poor countries in 1000 become rich ones later.
   Why dont China and India rule the world?
2. Colonies (USA), fragmented states (German
   Confederation), resource-poor states (Japan) and
   late developers (NICs) all ended up more
   prosperous than many countries (Mexico, Brazil,
   African states) rich in natural resources and
   provided with aid from rich countries. Why?

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II. Modernization Theory

• aka Neoclassical or Development Economics
• Western-centric stages of development

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II. Modernization Theory

• aka Neoclassical or Development Economics
• Western-centric stages of development
• Implications
• S-Shaped Growth Curve

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Predicted Growth Over Time

• Diminishing Returns to Capital
• Capital-Fueled Growth
• Lack of Capital
• TIME

Per Capita GDP
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II. Modernization Theory

• aka Neoclassical or Development Economics
• Western-centric stages of development
• Implications
• S-Shaped Growth Curve
• Convergence Size of national economies will
  eventually be determined only by population (more
  or less equal GDP per capita)
• Recommendations Agricultural surpluses, resource
  extraction, foreign investment, loans and aid,
  monetary stability, free capital markets,
  modern (Western) values, political stability
  (possibly authoritarianism)

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D. Problems with modernization theory

• Authoritarian regimes often renege on promises of
  development, become corrupt
• West used state intervention to develop
• Only the UK relied on free trade, because only
  the UK could be the first to industrialize
• Germany and France needed industrial banks to
  direct investment to growth industries
• Russia and Japan needed massive state involvement
  and protectionism
• NICs used developmental state approach to
  target export sectors

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3. Modernization stalls

1. Capital wasnt reinvested in industry

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3. Modernization stalls

1. Capital wasnt reinvested in industry
2. Developed countries refused to lower barriers on
   textiles and other goods

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3. Modernization stalls

1. Capital wasnt reinvested in industry
2. Developed countries refused to lower barriers on
   textiles and other goods
3. Debt crisis burdens accumulated when commodity
   prices fell

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Commodity prices stall while the cost of living
rises.
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3. Modernization stalls

1. Capital wasnt reinvested in industry
2. Developed countries refused to lower barriers on
   textiles and other goods
3. Debt crisis burdens accumulated when commodity
   prices fell
4. Capitalist countries intervened against state
   involvement in economies (most common before
   1960s)

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E. Neoliberalism An update to modernization
theory

1. New Institutionalism Institutions must create
   incentives for investment (transparency, prevent
   corruption, prevent rent-seeking) ? embrace
   democracy and limited government

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E. Neoliberalism An update to modernization
theory

1. New Institutionalism Institutions must create
   incentives for investment (transparency, prevent
   corruption, prevent rent-seeking) ? embrace
   democracy and limited government
2. Embrace export-led development invest in
   infrastructure relevant to modern industries
3. Structural Adjustment Austerity programs to
   reduce government spending and tax burden
   (increasing private investment, preventing debt
   spiral)
4. Focus on micro incentives to individuals/firms
   rather than macro national development projects
   (dams, power plants, railroads, etc.)

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F. Evidence against Neoliberalism

• Sill cannot explain NICs autocracy worked in
  Taiwan, South Korea, Singapore, Hong Kong
• Developmental State government picked winners
  and losers
• Export-led industrialization did not emerge
  naturally
• Difficult to sustain free market and democracy in
  poor states
• Self-serving All recommendations tend to help
  foreign investors, but many harm domestic poor

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III. Dependency Theory

• Overview Underdevelopment is perpetuated by the
  global economic order prosperity will require
  empowerment of poor people in poor countries
• History matters -- Past events influence present
  options (path dependence)
• Europe UK, France, Prussia, Russia all followed
  different paths, because only the UK could be
  first

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2. Colonialism

• Economic effect Colonial powers exploited
  colonies, siphoned wealth to home countries
  (slave labor, trade monopolies, head taxes, etc)
• Institutional Effects Recall the 1500
  population-development trade-off from
  slavery-based institutions
• Social effects
• Development of pro-colonial local elites
  (collaborators and administrators) sympathetic to
  ideology and culture of colonial power
• Divide-and-Conquer Colonial power makes itself
  necessary for stability
• Metropole-satellite division Within-country
  division between developed urban areas for
  elites and resource-producing rural areas for
  exploitation

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iv. Colonial predictors of present-day economic
inequality

• Former slave society (esp. tropical colonies)
• European settlement
• More Europeans more inequality (if a minority)
• New Europes (European colonists become
  majority) less inequality
• Conclusion Privileged minority in colonial
  period inequality in present day
• These two variables account for more than half of
  the variation in inequality between nations today

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Inequality and European Settlement
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3. Post-colonial development

1. Neo-colonialism Local elites of colonial era
   installed as government
2. Dependent development Former colonies have lost
   indigenous economic structures, possess
   infrastructure and economic systems geared to
   production of primary exports (mining, cash
   crops, etc.)
3. Key idea Underdevelopment ? Undevelopment
   Dependent countries dont need to catch up by
   following the paths of rich countries

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C. How is dependency perpetuated?

1. Global economic system Divided into core and
   periphery. Peripherys function is to export
   cheap raw materials to core, then import
   expensive processed goods back

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Core Periphery 1800
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Core Periphery 1900
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Core Periphery 2000
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Primary Exports, 1990
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Primary Exports, 2002
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Secondary Exports, 1990
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Secondary Exports, 2002
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High-Tech Exports, 1990
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High-Tech Exports, 2002
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C. How is dependency perpetuated?

1. Global economic system Divided into core and
   periphery. Peripherys function is to export
   cheap raw materials to core, then import
   expensive processed goods back
2. Unfair terms of trade Primary commodities lose
   value relative to manufactures

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Terms of Trade Decline, 1980-2001
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Terms of Trade Improvement, 1980-2001
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3. Why dont dependent countries just
industrialize like the core states?

1. Lacking capital, peripheral states require
   foreign investment and loans ? strings attached

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FOREIGN AID, DEBT, AND INTEREST PAYMENTS OF
DEVELOPING COUNTRIES, 1992 AND 1997 (IN US
BILLIONS)
US Billions
Aid as percent of interest 55.7
Aid as percent of interest 32.5
Year
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Total Debt Service, 1990
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Total Debt Service, 2002
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Votes in the IMF
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3. Why dont dependent countries just
industrialize like the core states?

1. Lacking capital, peripheral states require
   foreign investment and loans ? strings attached
2. Profits are used to buy imports rather than
   re-invest in the country
3. Local elites are part of the exploitive system
   Exploited metropoles themselves exploit satellite
   areas

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The Triangle of Dependence
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d. The Role of MNCs perpetuation of core
dominance

• MNCs outcompete local firms through economies of
  scale or dumping
• MNCs repatriate profits instead of investing them
  in-country
• MNCs construct alliances with local elites
  (bribes, or simply offers of jobs and capital)
• MNC mobility creates race to the bottom in
  labor standards
• Threats to MNCs are international threats ? more
  likely to trigger military intervention

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D. Policy Recommendations Its not about
catching up periphery must follow a different
path to prosperity

• Radical Variant De-Linking (Autarky) and
  South-South Links. Example Maoism
• Emphasize industrialization at expense of
  agriculture (esp. Great Leap Forward)
• Prevent foreign investment, capital transfers
• Focus on domestic market instead of trade
• Avoid dependence or vulnerability Redundant
  autarkic development in regions

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Performance Maoism in China
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2. Moderate variant Import-Substituting
Industrialization (ISI)

1. Tariffs and Subsidies directed to replacing
   imports with domestically-produced goods
2. Shift from primary to manufactured products

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C. Evidence for Dependency Theory

1. Mild de-linking (devaluation and tariffs)
   protected some Latin American states from Great
   Depression
2. Explains different paths of Australia, Argentina
   from 1913 to present

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Argentina in 1913 Nearly Developed Compare
to 1987
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Argentine Capital Dependence Hobbles Economy From
1913 On

• Capital scarcity during/after WW I and Great
  Depression undermines development

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Latin America Exporters relying on foreign
investment performed poorly
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C. Evidence for Dependency Theory

• Mild de-linking (devaluation and tariffs)
  protected some Latin American states from Great
  Depression
• Explains different paths of Australia, Argentina
  from 1913 to present
• Recent neoliberal programs have had mixed
  results
• China Apparently works (but still high state
  control see textbook for economic Eras)

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C. Evidence for Dependency Theory

• Mild de-linking (devaluation and tariffs)
  protected some Latin American states from Great
  Depression
• Explains different paths of Australia, Argentina
  from 1913 to present
• Recent neoliberal programs have had mixed
  results
• China Apparently works (but still high state
  control see textbook for economic Eras)
• Mexico and Brazil Structural adjustment has not
  produced growth

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D. Shortcomings of Dependency Theory

1. ISI inefficiency. Worse products for the price
   (poor states markets are too small to support
   economies of scale) ? subsidies are expensive and
   undermine incentives to expand size of domestic
   market
2. Consumers rejected protectionism -- Even
   dependency theorist Cardoso governed Brazil as a
   neoliberal!
3. Urban focus undermines farming All those city
   workers need cheap food. ? price controls and
   perverse incentives OR urban revolutions
4. The problem of the NICs Investment increased
   growth!

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Dependency in Taiwan Investment increased during
take-off period
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V. Selectorate Theory Institutions First

• Division of society
• Leader Decides public policy
• Selectorate set of people with legal right to
  participate in selection of the government
• Democracies Adult citizens
• Monarchies Royalty or nobles
• Some autocracies have large selectorates
  (single-party states, rigged elections, etc.)
  Why?
• Winning Coalition Number of selectorate actually
  needed to gain/retain power
• Democracies About half of S
• Autocracies Military leaders, governors, key
  nobles, election supervisors (to fix the vote),
  etc.
• Disenfranchised Powerless

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Selectorate Theorys Division

• Societys Disenfranchised
• Selectorate
• Winning Coalition
• Leader

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B. Regime Types Three combinations

• W Size of winning coalition
• S Size of selectorate
• W/S Regime Type

Typical Regimes Typical Regimes Winning Coalition Size Winning Coalition Size
Typical Regimes Typical Regimes Small Large
Selectorate Size Small Monarchy/ Junta N/A
Selectorate Size Large Autocracy Democracy
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C. Policy Tools

• Allocation of resources
• Public Goods
• Benefit the entire selectorate (S) both
  supporters and opponents/defectors
• Collective in nature non-rivalrous (I can enjoy
  the good without taking any away from you) and
  nonexcludable (providing for one provides for
  all). Classic examples economic growth,
  peace, absence of crime, clean air, etc.
• Private Goods Benefit supporters only (W)
  Implies excludability
• Leaders prefer to use private goods to remain in
  power (punish defection)

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D. The loyalty norm effects of S and W

1. W/S is Large Chance of selector being needed in
   next coalition is high ? defect if private goods
   at less than maximum

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Large W/S Democracy and Monarchy/ Junta (Chance
of being needed is high)
Selectorate Winning Coalition


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D. The loyalty norm effects of S and W

1. W/S is Large Chance of selector being needed in
   next coalition is high ? defect if private goods
   at less than maximum
2. W/S is Small Chance of selector being needed in
   next coalition is low ? defection offers little
   prospect of increased private goods

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Small W/S Autocracy (Chance of being needed is
low)
Selectorate Winning Coalition

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D. The loyalty norm effects of S and W

1. W/S is Large Chance of selector being needed in
   next coalition is high ? defect if private goods
   at less than maximum
2. W/S is Small Chance of selector being needed in
   next coalition is low ? defection offers little
   prospect of increased private goods
3. Small W Easy to reward/punish with private goods
4. Large W Hard to reward/punish with private goods

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5. Institutions and Incentives

1. Leaders want Small W (easy to bribe if desired)
   and large S (very small W/S means defection is
   unattractive). Result Corruption possible but
   not required
2. Members of the winning coalition want Small W
   (more private goods) and small S (large W/S means
   leader must devote most resources to bribes).
   Result Corruption required.
3. The selectorate wants Large W (focus on public
   goods) ? implies Large S. Result Corruption
   difficult.

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E. Evidence for Selectorate Theory

• Explains many previous failures
• Agrarian elite coalitions reduced productivity
  (large estates, agricultural protectionism) but
• Urban elite coalitions also reduced productivity
  (food subsidies, Big Development and patronage,
  the Iron Triangle of rent-seeking)
• State control ? patronage and kickbacks (emphasis
  on private goods simply takes different forms in
  socialist or capitalist autocracies)
• Economic/Political freedom associated with
  greater prosperity (weakly) and life expectancy
  (moderately)

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3. Evidence for Selectorate Theory Democracy
(Large W) and Public Goods

Economic Growth Trade Policy
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4. Limits of selectorate theory

1. No advice for democrats Pursue public goods so
   people re-elect you is vague
2. Growth is only part of development government
   may opt for social insurance, education, social
   welfare programs, etc in lieu of economic growth
   (trade-offs between public goods)
3. Independent economic institutions (central banks)
   seem to work in industrialized democracies
4. Most NICs had Small W polities

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V. Conclusions The puzzle of poverty

• A. Overview

Modernization Dependency Selectorate
Core Assumption Economies naturally progress through stages Structure of world economy prevents peripheral development Leaders choose public or private goods depending on their incentives
Economic policies Free trade Sell primary commodities, then industrialize Reduce dependence (autarky or ISI) Vague Free trade and other good of the many policies like education
Politics Insulate economic policy from public (autocracy or independence) Prevent foreign-domestic alliances and empower urban workers Democracy more important than specific policies
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B. No Panaceas

1. No theory completely explains NICs Autocracy and
   Protection ? Export-led growth

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B. No Panaceas

1. No theory completely explains NICs Autocracy and
   Protection ? Export-led growth
2. No clear solution to path dependence
   Different policies needed in LDCs, but which
   policies will work (path dependence discounts
   other countries experiences)?
3. Are institutions and economic policies the only
   independent variables that matter? For example

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C. The Puzzle of Gender Inequality

• Gender inequality can impede development
  (economically inefficient, underutilization of
  talents, etc recall the evidence from
  Scandinavia)
• But where does gender inequality come from?

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