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Economic Geography 3 B

Growth and development theories

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The time perspective 1

Growth theories: quantitative orientation Useful for purely economic issues Important for economic geography in

assessing the spatial impact of growth

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Time perspective 2

Development theories: qualitative orientation Incorporate economic, cultural and social

aspects One element among others in economic

geography, equally important for social and cultural geography

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Methodological approach

Linear-causal theories: deterministic, simpli-fied, unrealistic (e.g.: trade creates growth that creates development that creates trade that ...). Macro-scale

Theories of economic stages (from neolithic to modern). Macro-scale

Non-linear theories, probabilistic, systems oriented (multiple causes of low degree of development). Macro and micro scale

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Growth

01 GDPtGDPt Absolute (real)

01

1 0

PoptGDPt

PoptGDPt

Relative(per capita)

2000-2001: GDP + 0.3 %

2000-2001: Pop. + 1 %, GDP + 1.2 %

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Neoclassical theory 1

Capital accumulation drives the economy and is an indicator of development

Existing wage disparities are automatically compensated by labour migration

The free market regulates everything and eliminates disparities (total competition)

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Neoclassical theory 2

Condition: the freedom of mobility must be guaranteed (total mobility, no state inter-vention)

Mechanistic, promotes the law of the jungle

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Postkeynesian theory 1

State investment creates jobs Four effects result from such investment:

multiplier, complementary, trickle-down and polarization effect

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Postkeynesian theory 2

Multiplier effect: the money earned will be spent and circulates, thus inviting for more

Complementary effect: investment may ini-tiate further investments (e.g. firm B proces-ses the output of firm A, or firm B produces a component for firm A)

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Postkeynesian theory 3

Trickle-down effect: the positive achieve-ments diffuse through space, leading to improved well-being (increase of consumer goods, incentive to investments)

Polarization effect: the point of investment is the only region to profit, the regional dispa-rities will continue to exist

Closer to reality, but still very mechanistic

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Theories of economic stages

Historically oriented Evolution of human society has passed through

different stages until the present (end stage) Key element: progress What is progress? High variety of stages and explanations, de-

pending on the perspective of the individual author

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W. Rostow

Traditional society (agricultural, no growth) Transitional society (slow technological change,

slight growth) “Take-off” society (self-propelled growth, iron and

steel industry) Mature society (high growth, efficient resource-

use, new industries, new labour requirements) Society of mass consumption (high income, con-

sumption and leisure society)

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E. Friedrich

Reflexive economy (focus: spontaneous needs; subsistence)

Instinctive economy (adaptation to nature, de-cline of pure subsistence economy)

Traditional economy (less dependence from na-ture, division of labour, market economy)

Scientific economy (independent from nature thanks to science and technology, market economy)

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M. Friedman

Pre-industrial (isolated settlements, spatial equi-librium, no competition)

Transitional (industrialization, spatial inequali-ties, primary cities as growth poles, dependent and exploited peripheries, competition)

Industrial (urban networks, more growth poles, less peripheries, competition)

Post-industrial (functional interdependence, equilibrium situation, less competition)

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K. Marx

Primitive society Slave society Feudalism Capitalism Socialism/communism

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Critique

Retrospective and descriptive Created from a Northern perspective They suggest that history has come to an end

(the end-state of the “present”, whatever this means)

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An alternative model for the African context

Tribal society: subsistence and low surplus eco-nomy

Colonial society: economic exploitation, Africa as dependent and exploited periphery

Postcolonial society: economic exploitation un-der a new/old system

Independent society of the future: development of autochthonous forms of the economy

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Arguments

The economy is part of every society, hence has to be seen in context (culture)

The alternative model emphasizes the road from local/regional to global relations, both in the social and economic domain

The look into the future (different for every society) incorporates development as a con-stant process

The model is open to discussion

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Development

A process that never ends Meaning: to unfold, to unroll, i.e. to open up Friedman: ‘a discontinuous cumulative pro-cess,

which manifests itself in series of inno-vations and will eventually lead to a structu-ral transformation of the social system.’

WL: ‘a process leading from an original situa-tion (which is judged as unsatisfactory) to a new situation, judged as better or satisfactory’

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Attention

Development is not a final state of things but a process

Development is a social, political and economic issue (help towards self-help), not simply the provision of material goods

In many theories, it is understood as something static, to be achieved, as a ‘final’ state

The legacy of the economic stages can be de-tected in a number of theories

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Dependency theory (Dependencia)

Latinamerican theory, developed from the feeling of C-P-type dependency

Leading figure: Argentinian economist Raúl Prebisch (chair of UN Economic Commis-sion for Latin American)

Key arguments: terms of trade and invest-ments are in favour of the industrialized world

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Terms of trade 1

The exchange-value of an export commodity to an import commodity

If prices are negotiated according to supply and demand, neutral terms of trade will emerge

If prices are determined at a commodity ex-change outside the country of supply, there will be distortion and the terms of trade will be unfair to the export country

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Terms of trade 2

The South furnishes a lot of raw materials and food products

Most commodity exchanges are situated in the North, where prices are made according to the consumers’ demands, not to the suppliers’ needs

Prices of imported good into the South are based on the cost structure of the North and thus inde-pendent from prices for export goods

Real exchange is therefore not possible

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Example

Time 1: for 1 ton of bananas I can import 10 bicycles

Time 2: for 1 ton of bananas I can import 5 bicycles because the production cost of bicycles has risen in the North

In order to import 10 bicycles, I have to export 2 tons of bananas

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Consequence

1. More people have to walk, or2. The production of bananas has to be doubled in

order to satisfy the import needs 1) less comfort, 2) ecological consequences: a) more land for

export-bananas = less land for food; b) higher intensity = more fertilizers (imported), hence higher threat to the environment and more de-pendency on exports to supply the foreign cur-rency for imports

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Characteristics of the dependencia

It suggests a vicious cycle in several fields: terms of trade, export and import dependency, decapitalization (transfer of profits by foreign investors, of capital by native upper class)

This dependency results from too strong an inte-gration into the world market which creates different kinds of dependency (econo-mic, political, cultural)

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Root of dependency

It can also be seen as the result of long-lasting foreign (colonial) domination

The colonial regime was geared to the needs of the ‘motherland’ and did not allow endogenous econo-mic development

This theory originated out of the specific Latin-american situation vs. the economic (etc.) power of the US, but its general value can be demon-strated in our time

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Modernization theory

A Northern theory based on the idea that mo-dernization (in the western style) will auto-matically lead to development

‘Modern‘ is a situation after a long evolu-tionary process

Only western civilization is modern, the rest are cultures with a folkloristic value that re-quire modernization

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Characteristics

Internal conditions in ‘ill-developed’ societies are the cause of ‘underdevelopment’

Exogenous influences are per se positive The dualistic situation (modern vs. traditional

sectors) is detrimental to ‘development’ Once this dualistic pattern has been overcome, a

country will be ‘developed’ A beautifully simplistic theory. If only it would

work…

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Polarization theory

Developed by G. Myrdal (1898-1987), Swe-dish economist (Nobel Prize 1974)

Basis: Cumulative causation, i.e. ‘poverty breeding poverty‘ or the positive feedback loop in a system (vicious cycle)

Root of the evil: the free market is the source of disparities

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Polarization vs. Neoclassics

Neoclassics Total competition Free market economy Free mobility Disparities disappear Far from reality:

homo oeconomicus

Polarization Oligpolistic situation Monopoles Obstacles to mobility Disparities remain Close to reality: man

as an irrational actor

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Cumulative causation

Positive and negative processes tend to reinforce themselves independently

A positive feedbackloop in a system means that an existing process continues

Once a person has become poor, he/she will have difficulties to come out of poverty as its stigma acts negatively on his/her chances

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A factory burns down

Factory

Workers

less shopping

Retail trade

Authoritiesless taxes

no salaries less tax income

less investment

s

emigration

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Effects

Regional disparities are inherent in the free market economy

The cumulative causation process results in a spatial differentiation into growth regions and declining regions

This process takes place in a parallel way in rich and poor populations: the rich become richer while at the same time the poor become poorer

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The role of the state

The unregulated free economy behaves in the way Myrdal showed

The state can intervene through various measures

Economic and development policy and planning restrict the free market forces in favour of the less fortunate

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Comment

A system cannot change from ist own will, it need some form of external energy

The poverty-vicious cycle can hardly be broken by the poor themselves

Disparities are inevitable: the earth is not uni-form, nor are the human being

Disparities can be reduced through a change of attitude

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Endogenous development

Every region and every country has a certain potential of its own

Economic circuits are often limited in space (local, regional)

The world-market must not be considered as the only outlet for products but must be integrated into a wider economic philosophy

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Endogenous vs. exogenous development

Exogenous The North as exclusive

model Orientation towards the

global market Primary aim: moderni-

zation Result: dependency

from the outside world

Endogenous Appreciating southern val-

ues and local knowledge Local, regional, national

and global markets side by side

Primary aim: autonomy in survival

Result: interaction with outside world

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Requirements

Endogenous development requires to be compatible with a number of factors

These factors can be seen in isolation, but in reality they are all interrelated

They comprise space (environment, local and regional activity space) and society (social organization, economic needs and cultural life)

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Compatibilities of endogenous development

Endogenous development

cultural compatibility

ecological compatibility

economic compatibility

local/regional compatibility

social compatibility

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Commentary

Development theories can explain everything and nothing.

Their application depends on the (ideological) position of the researchers and the politicians

Development is modernization, but not in the sense of westernization

Modernization is a continuous process that takes place in every society according to its own rhythm

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A provocative statement (IMF)

The provision of greater trade opportunities by increasing access to the markets of advanced economies is a necessary condition for breaking the vicious circle of stagnation, poverty and weak governance (The Honorable Nicolás Eyzaguirre, Minister of Finance of Chile,

Washington, D. C., April 20, 2002)

Do you agree?