Rise, Fall and Revival of Development Economics: Historical Context and Theoretical Considerations. by Jorge Nogueira and Rebecca Hovey Cornell University November 1994 Working draft. Please do not cite without authors' permission. Prepared for presentation at the 36th Annual Conference of the Association of Collegiate Schools of Planning (ACSP), "Regions in a Global Context", November 3-6, 1994, Phoenix, Arizona, USA.

Summary

Introduction 01 Part One: Context, Critiques and Challenges 02 1.1. The Historical Context 02 1.1.1. The Rise of Development Economics 1.1.2. The Fall of Development Economics 1.1.3. Revival of Development Economics 1.2. Sources of the Critique 06 1.2.1. The Counter Revolution 1.2.2. Interdisciplinary Development Studies and Critical Social Theory 1.3. Challenges 08 Part Two: Development Economics: Theoretical Considerations 10 2.1. Theoretical Heritage 10 2.1.1. The Neoclassical Analysis of Developing Countries 2.1.2. Development Economics: The Structuralist Paradigm 2.1.3. Development Economics: Modernization Theories 2.1.4. Neo-Marxists 2.2. Responses to the Current Challenges Facing Development Economics 16 2.2.1. International trade and Foreign Investment 2.2.2. The Role of the State 2.2.3. Income Distribution and Poverty 2.2.4. Community Initiatives and Mobilization 2.3. Final Comments and Suggestions for a Research Agenda. 22 Notes 25 Bibliography 29

Introduction Development economics as a field of study flourished between the 1940s and late 1970s, only to have its death toll rung by some of the field's own pioneers by the early 1980s (Hirschman, 1981; Seers, 1979). Recent surveys of the literature on Development Economics point to a revival of the field occurring in the late 1980s and early 1990s.i In this paper, we argue that new efforts to resurrect development economics must adequately address criticisms of development projects and theory that emerged over the past two decades, but that it is important to do so from a historical perspective that draws on and reformulates major theoretical contributions from the field. We identify four critical challenges to a new development economics as the following: 1) the new debates surrounding the opening of developing economies to international trade and investment; 2) the continuing inability of economic theory to resolve problems of distribution and poverty; 3) the new role of social movements and community initiatives as economic actors; and 4) a theoretical vacuum in development economics regarding the role of the state. The paper is organized as follows: Part One presents the historical and political context surrounding the origins, critique and efforts to reformulate development economics. Two divergent sources of the critique, the Neoclassical counter-revolution in economics and the interdisciplinary field of development studies, are reviewed as presenting development economics with important challenges for a new research agenda. Part Two of our study reviews theoretical approaches associated with the origin of development economics and assesses how current theoretical advances in the field adequately answer the challenges and critique identified in Part One.

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Part One Context, Critiques and Challenges 1.1. The Historical Context 1.1.1. The Rise of Development Economics The branch of study, research and teaching known as development economics involves the interpretation of processes of resource allocation and economic change in less developed countries as well as policy recommendations for development-oriented action (Hunt, 1989). The formal academic field of development economics did not exist prior to World War II (Eatwell et. al., 1989) but emerged during the late 1940s and early 1950s in response to many of the post-war economic and political realities of developing economies.ii At the international level, new governmental and multilateral institutions such as the World Bank and agencies of the United Nations were created that began to address economic policy issues of income growth, inequality and poverty. Several historical conditions contributed to the diffusion of ideas and actions that formed part of international development planning. First, prior to World War II, nations that are now considered to have third world or developing economies still retained colonial status in relation to the North. With the dismantlement of the European colonial empires between 1945 and 1965, the newly independent nations faced having to resolve deeply entrenched poverty and social inequalities, both within their own country, and between themselves and the former colonial powers of the North. Second, the advanced industrialized countries had coped with depression and unemployment during the 1930s and devised economic policies aimed at stimulating economic growth through massive governmental investment. These policies, supported by Keynesian macroeconomic theory, were transferred to the reconstruction of both Europe and Japan after World War II. Similar state-sponsored planning programs based on massive industrial and agricultural investments were formulated as responses to problems of starvation, distribution and inequality that existed in the third world. Along with these policies was the diffusion of Keynesian theory in academic economic circles and its influence in inspiring much of early development economics. Smithian notions of "the invisible hand" and "the free market" lost their appeal as governmental intervention and planning gained a new acceptance in the economic arena. Third, and related to both the economic struggles of the post-colonial countries and the post-war reconstruction of Europe, was the phenomena of Third World nationalism and Cold War political alignments. Nationalism was increasing among countries newly independent from colonialism, as well as among those that gained independence earlier,

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such as in Latin American. US and European foreign policy was concerned about the rise of new nations and their potential alignment with the Soviet Union. The "communist threat" that materialized in the Cold War served as a rationale for the developed capitalist countries to support economic assistance towards the Third World.iii A fourth reason for the rise of development economics was the improvement in measurement and definition of macro socio-economic variables and accounting standards. It was only as recently as 1939 that The League of Nations first presented aggregate economic estimates of 26 countries for a ten year period. Improved methods of estimation and conceptual definitions of development indicators have provided more accurate statistics on socio-economic gaps between and within countries. Within the field of economics, several different approaches emerged in response to the theoretical and policy problems of the Third World. These various approaches shared many points in common, particularly what Hirschman (1981) refers to as the rejection of "monoeconomics" - i.e., the notion that all economies can be explained and guided according to a single theoretical approach. Hirschman also asserts that these approaches shared an acceptance of a "mutual benefits" claim, that economic relations between the developed and developing economies can be shaped so as to yield gains for both. Most widely associated with the field was the developmentalist adaptation of Neoclassical economics formulated by early pioneers of the discipline: Rosenstein-Rodan (1943), Singer (1952), Nurkse (1953), Hirschman (1958), Rostow (1956), and Lewis (1954), among others.iv Most of these adherents shared several central development policies: Sen (1984: pp.486-87) refers to these basic strategic themes - "1) industrialization, 2) rapid capital accumulation, 3) mobilization of underemployed manpower, and 4) planning and an economically active state." Within Latin America, the Argentinean economist Raoul Prebisch (1949, 1964), working with the United Nations Economic Commission on Latin America (CEPAL) inspired an approach known as structuralist economics that shared many of the developmentalist assumptions, but argued that the problems of the southern developing nations could not be explained simply by stages of growth, but of economic power relations and structural differences between the advanced industrialized nations and the resource-extractive and agricultural economies of the South.v The Marxist perspective within development economics during this period contributed alternative analysis of both domestic and international economic growth based on analyses of class structure and relations of production. Dependency theory was another important perspective that emerged which shared many insights with both the structuralist school and neo-Marxist analyses. The dependistas viewed the structural obstacles of development as reproducing relations of power and control by the expanding advanced economies over the periphery. 1.1.2. The Fall of Development Economics The massive international development projects of the 1950s and 1960s, such as the United

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Nations Decade for Development, Alliance for Progress, and agro-industrial innovations associated with the Green Revolution, were successful in encouraging expectations of an improved and more equitable standard of living in third world countries. However, by the late 1960s and early 1970s, these programs came under increasing attack for failing to meet their objectives of equitable development. Whereas some developing countries achieved remarkable rates of economic growth (Lewis, 1984), nationally aggregated growth rates were criticized for masking underlying problems of distribution and development capacity (Stern, 1989).vi Moreover, in spite of relative economic growth, many economic disequilibria, such as unemployment, infrastructure bottlenecks, and external sector deficits, continued to be unresolved and threatened to jeopardize the long term stability of the development process. While early development efforts were scrutinized during the early 1970s, world economic conditions were beginning to change in ways that altered many of the structural conditions underlying developmentalist economic policies and rendered closed, nation-level developmental policies increasingly ineffective. The collapse of the Bretton Woods currency agreements in 1972, the OPEC oil cartel price increases, and the emergence of dynamic export-oriented East Asian economies shifted existing global trade, finance and factor relations. Simultaneous with these events was the swelling Eurodollar and petrodollar lending market supplied by vast capital earnings of petroleum producers and foreign capital escaping more highly regulated domestic financial markets. The abundance of capital on the global markets, with optimistic growth rates and easy borrowing conditions, led many developing countries to obtain liberal credit in the 1970s with the illusion that a country's economic problems could be resolved through deficit and credit financing (Dietz and James, 1985; Griffith and Sunkel, 1986; Edwards, 1985).vii Leading articles in economic journals revealed frustration and unsatisfactory experiences with a development emphasis on economic growth and industrialization, and advocated alternative approaches, such as Basic Needs (Adelman, 1975), equitable distribution (Stewart and Streeten, 1976) or integrated development (Rondinelli and Evans, 1983). While some of these approaches were followed closely by development practitioners, many academic economists found it increasingly difficult to find support within economics for the analysis of developing country problems. Sunkel (1993) suggests that the exclusion of development issues from mainstream economic analysis and university curricula contributed to a widening of development research to other disciplines, particularly sociology, anthropology, and human welfare (education, nutrition, health).viii This shift of development research from economics to an interdisciplinary school of development studies was advocated by several development theorists (Kay, 1989:10). Intense debates surrounding the focus of development research and theory erupted into severe internal disputes within the entire field of development economics (Dietz and James, 1985). Among the structuralists, theoretical disputes appeared between dependency theorists and developmentalists. Marxist economists tended to be aligned with the more

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radical dependency critique, yet they had their own internal quarrels regarding the role of imperialism and capitalist industrial development.ix Import-substitution industrialization (ISI), previously a cornerstone of structuralist economic policy, was increasingly viewed as having long-term limitations, and now presented each of these perspectives with theoretical problem of how to advance beyond a stage of early industrialization, complicated by unclear political consensus regarding a country's degree of integration with the world economy and global powers. By 1981, this unhappiness with the direction of development economics was expressed by one of the field's own pioneers, Albert Hirschman. His 1981 article "The Rise and Decline of Development Economics" was considered by many to be an obituary of the field, and a condemnation of the narrowness and contemptuousness of much of Western development aid policies toward the developing countries (Sen, 1983). Deepak Lal's (1983) ferocious attack on development economics from a conservative perspective two years later dug the potential grave. Other diagnoses were less pessimistic, such as Sen's, which acknowledged Hirschman's frustration, but saw the problem not so much in the failure of development economics, but "in the insufficient recognition that economic growth was no more than a means to some other objectives" (1984: 495). 1.1.3. Revival of Development Economics The field of Development Economics entered a near-dormant phase in the early 1980s during what would later come to be seen as one of the major development crises of the 20th century. Increased world interest rates and global recession in 1981-82 provoked the developing country debt crisis that threatened to undermine both developing country debtors and international lenders. The debt crisis focused attention away from long-run development strategies to the resolution of short-run disequilibria in foreign and domestic accounts (De Janvry, Sadoulet, and Thorbecke, 1993). The economic literature and policy recommendations during this period were dominated by issues of stabilization, relief, and structural adjustment. International Monetary Fund and World Bank conditions with member countries for debt service restructuring included fiscal cutbacks, reduced social spending, devaluations, lowered domestic demand to fight inflation, trade liberalization and export-oriented industrial policies. The debt crisis resulted in a set of related effects, however, that proved costly to developing economies: 1) higher interest rates and decreased world demand for exports meant that developing economies had to pay larger shares of GNP for debt service than before; 2) credit dried up almost overnight, reducing domestic investment and economic growth, 3) policy recommendations of multilateral lending agencies bore harsh consequences. The adjustment policies of the 1980s proved to have devastating social costs, and it was not long before substantial criticism emerged. The steady deceleration of growth in the advanced economies throughout the 1970s and

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1980s, and the world financial crises of 1982 and 1987 also resulted in skepticism regarding neoliberal approaches to economic development in the advanced economies. The need to provide for basic necessities of human life, both in the advanced and developing countries regained the attention of economists in the 1980s, as well as the growing concern about environmental abuse and the call for sustainable economic development. The "lost decade" of the 1980s for the developing world heightened this skepticism regarding mainstream economic approaches, while the abrupt disintegration of the Soviet bloc alliances and the emergence of a new market and private property orientation in these regions similarly spoke to the futility of an alternative "transition to socialism" that had previously been strong in development policy politics. By the late 1980s, the debt crisis and failures of neoliberal approach provoked new thinking among development economists. These renewed theoretical efforts include: new growth theory, neostructuralism, neo-marxist analysis, and a new developmentalism advocating strategic state support of private market and export-oriented economic initiatives. Dietz and James (1985) cite the combination of structuralist and institutionalist theory into neostructuralism. Others, [Rosales (1988), Ffrench-Davis (1988), Sunkel (1993)] contributed to neostructuralism by returning to Prebisch' earlier work and integrating it with neoliberal theories on trade and markets (Cypher, 1985). Within orthodox economic camps, a growing degree of sophistication regarding the problems of neoclassical theoretical assumptions also emerged, with prominent authors discussing market imperfection and disequilibria as important issues (e.g. Stiglitz, 1986). We argue that renewed efforts within development economics may confront the same criticisms as faced earlier if they are unable to address the critiques emerging from the decade of development economics' decline. What are these critiques, and what challenges do they present to theorists working within the field of development economics? The next two sections present the challenges that have emerged from two critical perspectives on Development Economics: from within economics, the Neoclassical support of market-based policies, and from outside economics, an interdisciplinary field of development studies critical of many underlying assumptions and research topics of traditional development economics. 1.2. Sources of the Critique In the 1970s, this criticism was expressed in the parallel emergence of two radically diverse approaches to development: the Neoclassical counter-revolution in economics rejecting the fiscal, trade and welfare policies of developmentalism (Toye 1987; Lal, 1983; Foxley, 1983) and an emergent interdisciplinary field of development studies critical of the ideology and social impact of many development policies and projects (Booth, 1985; Schuurman, 1993; Sachs, 1992; Escobar, 1986; LaTouche, 1993).

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1.2.1. The counter-revolution Within dominant policy circles, the perceived failures of development projects supported the claims of the mainstream Neoclassical school which had maintained a steady criticism of developmentalist and alternative approaches to development economics throughout this period. These critics, led by Harry Johnson, Peter Bauer, Deepak Lal, Ian Little and Bela Balassa, came to be identified with a proclaimed "counter-revolution" in development economics (see Toye, 1987). This initial resurgence of neoclassical thinking in development policy was due in part to theoretical advancement in areas of neoclassical welfare economics that seemed to address the unsolved problems of developing countries.x In general, however, the basic policy prescriptions of the neoclassical school were to emphasize market liberalization, export-led growth, and reduced government intervention.xi These ascendant approaches of the 1970s, which are also referred to as neoliberalism, or neoconservatism, did not account for structural characteristics specific to the developing countries, but supported the belief that all countries could follow a growth path if they adopted free market principles and shifted to export-led growth.xii The counter-revolution was associated with the attack on the supposed "Keynesian revolution" that inspired much of development economics. In the late 1960s, Milton Friedman at the University of Chicago, and then many other economists offered new theories and evidence that undermined the Keynesian faith that active government management could reduce or even stabilize unemployment. Their skepticism was given weight by the emergence of stagflation in the 1970s (Krugman, 1994). This new phenomenon expelled the Keynesian idea that monetary and fiscal policy could smooth out the business cycle. A key tool of most development economists was put to rest, although Keynesianism would experience a renewal more than a decade later along with that of a new development economics. 1.2.2. Interdisciplinary Development Studies and Critical Social Theory The development studies field that emerged along with, and often in critical response to, development economics began to launch its own critique against both development and economics for reproducing universalistic and ethno-centric biases of Western social science. Critiques emanating from both post-structuralist and post-modern social theorists within this new field shared criticisms of the philosophical assumptions of development theory. They argued that 1) the rhetoric or discourse of development reflected epistemological categories which in turn shaped the social reality of Third World peoples (Escobar, 1988); 2) the teleological assumptions of development implicit in ideas of progress and stages of growth were unrealistic and Eurocentric (Schuurman,1993; Booth, 1993); and 3) universalist notions of rational and utilitarian agency central to development economics are unfounded as ontological principles and denied the possibility of local expression and autonomy to the populations of the Third World [Schuurman (1993) and

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Sen (1992)]. The new interdisciplinary studies explicitly rejected an attempt to view development solely from an economic perspective, and tended to take a broader sociological, historical and/or discursive understanding of development, such as followed by proponents of world systems theory, the French Regulation School, or hermeneutical studies of language and power. Some members of the development studies field have proposed agendas specific to a new development economics, while others in the field have written separately about critical new areas of societal development that need to be incorporated into any new understanding of economic behavior. Three areas of attention have come to have increasing significance in the fields of development studies and economics: new social movements and community-based initiatives; actors, institutions and agency; and democratic and economic liberalization. From development studies, a burgeoning literature points to the importance of grassroots organization, new social movements, and non-governmental organizations (NGOs) in pursuing autonomous social action.xiii Over the past decade, increasing work on community-based associations such as new social movements, grass-roots organizations and NGOs has challenged the notion of top-down economic policies by demonstrating how communities interpret, formulate and resolve their own needs and problems. The restructuring of states and markets has generated a reexamination of economic theory regarding actors, institutions and regulatory relations. Within economics, the area of institutional economics has similarly received increased attention.xiv This literature emphasizes the role of institutions in both shaping and distorting economic markets. De Janvry, Sadoulet, and Thorbecke (1993) have contributed to a theoretical understanding of the emergence of civic associations, such as social movements, as economic actors and institutions supplanting the traditional roles of the state and market and suggesting that work in this area can refine contemporary theory on economic behavior. The concurrence of efforts to implement both political and economic liberalization in many developing countries raises questions regarding the connections, contradictions, and possible convergence between economic policies and democratic reforms.xv The linkages between democracy and economic welfare is central to the evolution of modern economic thought. Several theorists writing about the dramatic changes in economic systems within the last decade point to the restructuring of states and markets as the most significant changes for economic theory to address. Whitehead (1993) suggests that this requires a refinement of the relationship between economics and democracy. Free market proponents have interpreted the lack of economic freedom as a violation of civil rights. Other, more extreme characterizations of rational action and market society, have formulated an economic calculus of political action as a libertarian agenda for the economic foundations of all social behavior (Buchanan, 1985). On the opposing side of this spectrum, many structuralist and Marxist economists have supported alternative reforms and proposals as

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part of a political agenda that supports human rights, equality, and other forms of economic democracy, including worker- or publicly- owned means of production. These advances are critical, yet we think that there remain many unanswered questions relating these areas to development economics. The institutional analysis of civic associations, for example, does not address the problem of the power of these groups, the possibility that they may be mobilized for undemocratic ends (as in the debate over abortion rights, for example, or right wing death squads in Latin American countries). The focus on democracy does not address the problem of whether such political reform follows a prescribed model, or how it may emerge from autonomous, participatory, or indigenous social forms. 1.3. Challenges Together, the New Classical and Interdisciplinary Studies critiques of development present a series of challenges to development economics which are not unrelated. In synthesizing their critiques, we find that these challenges center around the following issues: the opening of the economy to international trade and foreign investment, income distribution and poverty, the role of the state, and the recognition of community associations and initiatives as forms of economic agency. The degree and kind of openness to the world economy a developing country should seek and what should the government do, or not do, in order to promote economic development are two principal analytical and practical policy issues in economic development today (Singh, 1994). Income equity and reduction of poverty have been components of most definitions of economic development, particularly by those who have refused to identify development with mere economic growth (see Sen, 1988). Finally, if a retreat of the state is necessary to achieve efficiency and equity in the process of development, as the neoliberal framework proposes, community initiatives and mobilization become purposeful. Local organizations must be in a position to fill the space left by the state's withdrawal. How, if at all, existing and new work in development economic theory deals with these issues becomes the next concern of this paper.

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Part Two Development Economics: Theoretical Considerations 2.1. The Theoretical Heritage In a paper published last spring, Bardhan (1993) "tried to restore some historical perspective with respect to the many contributions of development economics to the rest of economics, and to point to the younger generations, ..., how some of the glittering ideas they currently play with originally came from that now-neglected field, ..." (Bardhan, 1993:129). In this section we follow the footsteps of Bardhan's work by attempting to restore historical perspective to those who have orchestrated furious onslaught on development economics during the last few decades. We do so by contrasting conceptual foundations of development economics and assessing to what extent the recent literature in the field adequately addresses the four previously identified challenges to development economics. In this section we propose that there were four basic orientations for dealing with economic growth in developing countries by the end of the 1960s and beginning of the 1970s, forming what we call the theoretical heritage of current development economics. The first, and probably the least important at the time, was the neoclassical paradigm represented by the studies of Jacob Viner and Peter Bauer. The second and third paradigms make up what is more frequently referred to as development economics: the structuralist paradigm originating in Latin America and developmentalist adaptation of neoclassical economics associated with modernization theories originating in the academic circles of the United States and Western Europe. Finally, a fourth paradigm was comprised of Marxist and neo-Marxist economists, with Paul Baran, Paul Sweezy, Andre Gunder Frank, Arghiri Emmanuel, and Samir Amin as the main contributors. 2.1.1. The Neoclassical Analysis of Developing Countries We can unequivocally argue, following Hirschman (1981) that almost all contributions in development economics were related to the mainstream/neoclassical paradigm by either criticizing its relevance in explaining developing country economic problems and/or by following the neoclassical, marginalist legacy to explain and change the reality of the majority of the countries in the world. In the latter group there were two neoclassical economists who explicitly have used its instruments to analyze the developing world: Jacob Viner (1892-1970), from University of Chicago and later Princeton University, and Peter Bauer, from the London School of Economics and Political Science. Jacob Viner's main fields of interest were international trade and history of economic

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thought. His writings on the economics of development were the product of his lectures at the National University of Brazil (now the Federal University of Rio de Janeiro) in the early 1950s (Viner, 1952). His positions on the process of development were to become trade-marks of most neoclassical discussions on development: 1) he was critical of the role of governments and argued that they suffered from the lack of technical expertise in economic management and of incentives for public sector efficiency, the corruptibility of officials, and overly bureaucratic decision-taking; and 2) he favored an alternative development strategy that supported agricultural specialization through comparative advantage, but with minimal government intervention, as a means of raising agricultural incomes that would in turn provide the impetus and resources for industrial development.xvi In spite of this free market/comparative advantage approach, Viner accepted the theoretical validity of tariff protection for infant-industries and economies (Bloomfield, 1992). Viner was also contradictory in his position on government action. He accepted government intervention as necessary for a) strengthening antitrust legislation, b) helping to develop human potential by greater expenditures on education and health and subsidizing migration to other regions of the country with better natural resources, c) attempting to overcome poverty, d) taking measures in the area of "distributive justice" (with the risk of overdoing it), and e) resolving problems related to externalities. Peter Bauer (in particular in his book with B. Yamey) proposed that development should mean the widening of the range of alternatives open to people as consumers and as producers through a corresponding increase in the national income. "Other things being equal, an increase in the goods and services available for consumption or investment improves the range of choice and of opportunities in economic life" (Bauer and Yamey, 1957:151, cited in Hunt, 1989). However, in a liberal fashion, he recognized that growth would entail compulsory, restrictive choices and that national income growth generated by such means could not be accepted as development. Underdeveloped countries were characterized, in Bauer's opinion, by poverty in income and accumulated capital and backwardness in technique. In spite of his awareness of the great diversity of economic, political, and cultural conditions that were prevalent in developing countries,xvii he believed the "laissez-faire" neoclassical reasoning could be applied to understand the problems of these countries and to define development strategy for them. Bauer is considered to be the earliest and most distinguished critic of many authors of the sub-discipline that we are calling "development economics". For instance, his reflections on the role of the state in development led him to challenge the widespread belief, urged most frequently by Gunnar Myrdal, that comprehensive central planning, together with substantial aid from the governments of industrialized countries was needed to overcome the vicious circle of poverty, low savings and low investment. In his opinion, the key elements to the development process in any country are: resource endowments, institutions, culture, and political systems. In his analysis the main conclusions were: a) the

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availability of naturally-occurring material resources do not immutably determine the economic development of a country; b) a country's human resources, institutions, policies and political stability determine its growth potential; and c) some institutions, customs and beliefs may tend to complicate efficient allocation of resources (caste system in India and the refusal of Hindus to slaughter cattle). But, he argued, within these constraints producers and consumers behave with the same economic rationality as in any industrially advanced society. 2.1.2. Development Economics: The Structuralist Paradigm Hunt (1989) depicts two dominant perspectives that emerged from early theoretical work of development economists in the 1940s and 1950s: one in the Western Europe and North America which Hunt calls the paradigm of the expanding capitalist nucleus and Toye (1993) refers to as modernization theory; and another, originating in Latin America known as the structuralist paradigm. These perspectives generated two different sets of propositions and lines of reasoning concerning the nature of development, the dominant causes of underdevelopment and the route to be followed in overcoming these. We analyze the structuralist contribution in this section and the modernization theories in the following one. Latin American economists were grappling with the severe problems imposed first by the Great Depression of the 1930s and then by the further disruptions to the international economic system caused by the 1939-45 war. Most of them, trained in the neoclassical tradition, tended to recommend mainstream prescriptions such as devaluations and fiscal cutbacks in the hope that the crisis would be a passing phenomenon. As it became evident that the problem was of a more medium-term character, they were confronted with empirical conditions which brought into question the continued espousal of the theory of comparative advantage and the doctrine of laissez-faire. The Argentinean economist Raoul Prebisch, considered to be the founder of the structuralist school, had to make policy recommendations to cope with unfamiliar circumstances: the collapse of international trade and the consequent severe shortages of foreign exchange and manufactured imports. With the passage of time Prebisch and his colleagues in the United Nations' Economic Commission on Latin America and the Caribbean (ECLAC) began to develop a new body of theory that reflected their changed assessment of economic conditions in Latin America and the international economy. The economic structuralism of ECLAC had as a key for the internal unity of its thought the idea that the world economy was composed of two poles, which interact with each other, the center and the periphery, and that the structure of production in each one of them differed substantially. The structure of production in the center was seen as homogeneous and diversified, that of the periphery, in contrast, as heterogeneous and specialized: heterogeneous because

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economic activities with significant differences as to productivity existed side by side, with the two extremes provided by an export sector with relatively high productivity of labor, and subsistence agriculture in which it was particularly low; specialized because the export sector would tend to be concentrated upon a few primary products, having very limited backward and forward linkage effects with the rest of the economy. It was this structural difference between the two types of economies that determine the types of trade and technology transfer that take place in the world economy. In other words, the structural difference lies behind the different function of each pole in the international division of labor, and this in turn had the effect of reinforcing the structural difference between the two (Palma, 1989). Thus the two poles were closely bound together, and were mutually and reciprocally conditioning. Therefore, the structural difference between center and periphery could not be defined or understood in static terms, as the transformation of either pole would be conditioned by the interaction between them. Center and periphery formed a single system, dynamic by its very nature. The international division of labor which mainstream economics claimed was naturally produced by world trade benefitted the center (where manufacturing production is concentrated) over the periphery (which was destined mainly to produce primary products). The ECLAC analysis turns on three tendencies which are considered inherent to the development of the periphery: unemployment of the labor force, external disequilibrium, and the tendency to deterioration of the terms of trade. Prebisch and his followers argued that the terms of trade tend to move against the peripheral countries in favor of the industrialized center. The relatively weak bargaining power of the workers in the periphery and the low income elasticity of demand for peripheral products were likely to lead to a secular deterioration in the terms of trade for peripheral countries.xviii Moreover, market forces would not provide an equitable solution for this problem of deterioration of terms of trade. For those scholars the periphery should reduce its primary product exports by switching resources into an import-substituting program of industrialization. Such program should be based on a structure of export duties on primary products or of import duties on manufactures. Thus, the production of manufactures, which was socially profitable but privately unprofitable without such protective duties, would then become privately profitable after the imposition of duties. Prebisch contended that the economic intervention by the State was essential in order to lessen the vulnerability of the domestic economy to excessively sharp external fluctuations.xix In particular, the industrialization (development) process was seen as being a result of policy rather than as a spontaneous creation of the market. The State should direct the accumulation of capital and should at least supervise major industrial projects. It was considered necessary for public enterprises to engage in those activities that were beyond the scope of the private sector and for the activities of the latter to be regulated by the State.xx Government action would also be indispensable to correct excessive social and geographic disparities.

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Many ECLAC studies highlighted the inadequacy of traditional analyses, which saw economic development as merely a question of growth (Rosales, 1988). Development should also involve changes in the productive, demographic, occupational and distributive structures, all of which are more than mere automatic by-products of increases in per capita income. A formulation of requirements for development should have as central elements the advancement and dissemination of technological progress, the expansion of the domestic market, the homogenization of the production system, and the attainment of a degree of autonomy and self-sufficiency in respect of the dynamics of growth. All of them would, directly or indirectly, require structural reforms, which would seek to alter the distribution of assets (e.g. land) and of income flows (taxes, fiscal expenditure, income policies).xxi 2.1.3. Development Economics: Modernization Theories In the 1940s and particularly in the 1950s economists in Western Europe and North America who turned their attention to the economically "backward" or "underdeveloped" regions of the world did so in response to different pressures and at a greater remove from the day-to-day problems of economic policy formation.xxii These development economists in Britain and North America were concerned with a geographical area that embraced much of Asia and Africa as well as Latin America, and one that consequently contained a wider array of economic, social and political conditions. It was not a surprise, therefore, that their debate on economic development concentrated upon issues of long-term strategy and basic theory. The starting point of this debate is usually dated to the publication of Rosenstein-Rodan's paper in 1943 proposing a practical strategy for the economic development of South and Southeast Europe. Autonomous capital accumulation in the private sector and the role of the state in promoting economic development were emphasized in a perspective that would soon materialize in the complementary contributions of Lewis and Rostow. Common elements in the perspective articulated by Lewis and by Rostow are: a) economic growth, measured by rising per capita income, is the defining characteristic of economic development; b) economic development entails the transformation of a traditional, stagnant, subsistence-oriented economy into a dynamic, capitalist economy based on wage-labor, capable of self-sustained growth and of providing, in the long term, rising real wages; c) a key determinant of the rate of growth is the rate of capital formation, which is in turn governed by the share of savings in national income; d) the capitalist/entrepreneurial class plays a crucial role in the capital accumulation, for its members have a higher propensity to save and invest out of their profit income than any other class; and e) in order to maximize the subsequent rate of growth it is necessary to concentrate as large a share as possible of national income in the hands of those with a high propensity to save, i.e. the capitalist class.

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From those propositions more specific recommendations follow with respect to wage, monetary, and fiscal policies and the choice of production technology, all designed to enhance the rate of profit and the command over scarce resources of the capitalist class, and, hence the rate of productive accumulation.xxiii Within this framework Rostow also explores both the cultural and institutional preconditions of development, and the role of different productive sectors in contributing to the take-off.xxiv Lewis on the other hand focuses on various aspects of the interaction between the capitalist and pre-capitalist sectors. Ranis and Fei (1961), building upon the earlier analytical work of Lewis, seek to give greater rigor to Rostow's concept of take-off, and to explore more fully the role of traditional agriculture therein (Hunt, 1989). Hunt (1989) argues that the main attractions of this perspective derive from the relative simplicity of its fundamental elements, its potential fruitfulness at the theoretical level, its relative optimism, and the fact that it identified constraints to growth about which there was both widespread consensus and a feeling that it could be overcome. Its politically acceptability, both in Western industrially advanced countries and in many of those countries in which it was applied, also helped in its extensive influence. The price paid was also considerable. Probably the modernization school ideas have been subjected to the most vehement criticism from various analytical perspectives and at various analytical levels. 2.1.4. Neo-Marxists Marx did not devote significant attention to the problem of unequal development on a world scale (De Janvry, 1981), although in his analysis of the laws of motion of the capitalist mode of production, he stressed the expansionist drive of capitalism, which results from its competitive nature. It is this condition that, in the context of secular downward pressures on the rate of profit and recurrent economic crises, throws capital beyond national boundaries and beyond the confines of capitalist production. This inner expansionist dynamic thus universalizes the capitalist mode of production and homogenizes social relations. All noncapitalist modes are ultimately destroyed. Irrespective of its origin - endogenously created or externally imposed - capitalism was to re-create autonomous patterns of growth similar to those of Western Europe. Theories of the world expansion of capitalism would abound and diverge among followers of Marx. Many pages have been written in explaining similarities and differences in the works of Rosa Luxemburg, Lenin and Bukharin, and Kuusinenxxv. The latter thinker would have a major influence on the formulations of the law of unequal development in a world scale advanced by neo-Marxist authors between the 1940s and 1960s. Actually, these formulations inverted the law of unequal development relative to the formulations of Marx, Luxemburg, Lenin, and Bukharin. In the Sweezy and Baran's thesis (or the Monthly Review School, as it is also known) unequal development is development of the forces of production in the center and their underdevelopment in the periphery.

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Baran and Sweezy (1966) argue that imperialism consists of the export of industrial capital in the form of multinational corporations, searching for higher profit rates in the periphery than those in the monopoly sector in the center. The surplus thus captured is repatriated: the periphery is drained of its investible surplus, which blocks the development of the forces of production. Therefore, the world expansion of capitalism, while not theoretically necessarily to maintain the rate of profit in the center, has historically been an integral part of the resolution of contradictions in the center. Imperialism has thus simultaneously created growth and stagnation. Baran and Sweezy's interpretation of the law of unequal development - with focus on surplus extraction from the periphery - was followed by Andre Gunder Frank and the Latin American "dependency" school's attempt to explain the historical process of underdevelopment in Latin America. For Frank (1969), underdevelopment is also a process of continuing extraction of surplus from the underdeveloped countries, and its transference to the centers of world capitalism. However, an important element of his version of the neo-Marxist law of unequal development, for which he was later strongly criticized, was his emphasis upon surplus appropriation through trade. Frank implicitly equated capitalism with relations of exchange rather than interpreting it as a system of production. He argued that monopolistic merchant capitalism had penetrated the remotest reaches of all developing economies via a series of trading networks in which small-scale merchants in rural areas were linked to larger monopolistic suppliers (and monopsonic buyers), and so up the chain to large scale import-export activities dominated by foreign investments, reproducing a process of development-of-underdevelopment. The surplus-extraction approach to the law of unequal development gained major theoretical status with Arghiri Emmanuel (1972) explaining the determination of international terms of trade using the labor theory of value. Emmanuel located the source of unequal gains in trade in wage differentials between center and periphery. An international gap in wages between center and periphery leads to terms of trade that favor the higher-cost products exported by the center and devalue the exports of the periphery. Unequal exchange in trade thus becomes a factor of surplus extraction even with fully capitalist production relations in the periphery, equally high labor productivity, and perfect free trade. This, in turn, is taken to explain stagnation in the periphery. Emmanuel's analysis, in spite of its theoretical attractiveness, is full of serious theoretical and empirical difficulties (De Janvry, 1981). These difficulties have inflamed a debate on unequal exchange that is far from settled. From this debate, Samir Amin (1977) presented the most elaborated development-of-underdevelopment interpretation of backwardness and the associated interpretation of unequal development. In Amin's analysis, the center economies are characterized by an articulated (or autocentric) pattern of accumulation whereby a portion of the productivity gains in the labor process translates into increased real wages, thus permitting a dynamic equilibrium among sectors and between production

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and consumption. The periphery has had two functions in the development of the world capitalist system: on the one hand, it has offered an expanding market at the expense of precapitalist areas; on the other hand, it has increased the average rate of profit. Unequal exchange and the outflow of profits block accumulation in the periphery, even though rapid growth occurs in specific periods and sectors. The history of the periphery consists of a series of "economic miracles" - brief periods of very rapid growth - followed by periods of blocked development, stagnation, and even regression.xxvi The periphery is fundamentally reduced to the dual function of providing cheap exports and high rates of profits on expatriated capital. This function is developed by maintaining in the periphery a process of extroverted and disarticulated accumulation where high labor productivity in the modern sector is accompanied by cheap labor and where semi-proletarianization in the noncapitalist spheres cheapens the cost of maintenance and reproduction of the labor power. 2.2. Responses to the Current Challenges Facing Development Economics Deepak Lal claimed that "the demise of development economics is likely to be conducive to the health of both the economics and the economies of developing countries" in the beginning of the 1980s. This restorative power of the demise of development economics was connected with the rejection of a dogma composed of a cluster of economic fallacies. In particular, the biggest of all fallacies (in Lal's opinion) was the denial of the universality of rational economic behavior and the existence of marginal substitution possibilities, on which neoclassical economic theory relies for its familiar results. Lal perceived the basic analytical failure of development economists to be their disregard of welfare economics and, particularly, a misinterpretation of the "theorem of the second best".xxvii He makes a case against any economic controls and all forms of government intervention in industry and trade. Lal also claims that "the case for liberalizing financial and trade control systems and moving back to nearly-free trade regime is now incontrovertible." (Lal, 1983, pp. 32). However, Toye (1993) submits that Lal's perseverance in extracting development policy conclusions out of welfare economics suggests that his aim is not to abolish government dirigisme, but to replace dogmatic dirigisme with rational dirigisme. The technical instrument to implement rational dirigisme is social cost-benefit analysis. De Janvry, Sadoulet, and Thorbecke (1993) clearly indicate contributions in economics at large that would improve the sometimes superficial arguments by the "conscripts of the counter-revolution". In the field of industrial organization an advance has been the focus on strategic behavior by individuals and organized groups in the context of incomplete markets. The theories of imperfect and asymmetrical information and, more broadly, transactions costs gave logic to the role of institutions as instruments to reduce transactions

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costs. The theories of collective action and of credibility in policy makers' behavior gave a new entry into the political economy of policy and the effectiveness of policies. Endogenous growth theory has been the subject of considerable development in the last few years (Pio, 1994). Based on the neo-classical micro-foundations, endogenous growth models removed one or both of the traditional assumptions of traditional new classical growth models, in which positive growth rates could not be sustained in the absence of exogenous population growth or technical progress. Another branch has dropped the assumption of competitive behavior, postulating imperfect competition. In this situation, rewards to all inputs of production do not exhaust total output, and rents can be assigned to activities which, though not directly productive, do expand the frontiers of knowledge, such as research and development, thereby inducing growth. The introduction of imperfect competition and increasing returns to scale in growth models parallels similar developments in international trade theory, and has produced some interesting cross-fertilization between the two areas, regarding, for example, the effects of increasing openness between countries at different levels of development. Neostructuralism shares the basic structuralist stance that the sources of (Latin America's) underdevelopment are not to be found primarily in policy-induced distortions in relative prices, but rather are rooted in endogenous structural factors. In the particular case of Latin America countries, three crucial aspects are tangible proof of this: (1) an international specialization in products lacking dynamic potential; (2) the prevalence of an uncoordinated, vulnerable, and highly heterogeneous production pattern that tends to concentrate technical progress and is incapable of fully and productively absorbing new entrants in to the labor force; and (3) the persistence of a growth pattern that excludes the vast majority from the fruits of progress, evidencing the system's inability to lower poverty significantly. A school of thought that has emerged since the middle of the 1980s, neostructuralism came forth initially as a "theoretical alternative to orthodox neoconservative adjustment programs. Its aim was to stabilize and adjust with minimal recession and less regressive distributive effects, materializing in heterodox stabilization and adjustments programs of the 1980s" (Ramos and Sunkel, 1993: 7). In this initial phase it shared with neoconservantism a concern largely limited to the short term. As adjustment was prolonged and the crisis persisted, neostructuralism began to draw on the heritage of the Latin American structuralist approach to development. The neo-Marxist paradigm also brought up novelties. The French Regulation School, led by A. Lipietz and M. Aglietta, formulated its thinking in the early 1980s. The essence of the Regulation School is that regularities in development trajectories are observable through historical comparative research. Regularities (that is, a sequence of contradictions, crises and transformation) in development trajectories can be abstracted in two concepts: regime of accumulation and mode of regulation. A regime of accumulation describes the way in

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which the economic product is allocated between consumption and accumulation. This is coupled with a particular mode of regulation: regulating norms, values and laws; a set of internalized rules and procedures that integrate social elements in individual behavior. The stability and consistency of an economic world system is therefore not the consequence of the working of the "invisible hand" of capitalism: rather it is the result of the interaction between relatively autonomous national regimes of accumulation. Thus the functioning of multinational corporations leads to an international division of labor. However, there is still the prerequisite of the cooperation of the individual countries, which can be further complicated by the involvement in a completely different project (Schuurman, 1993). Lipietz observes that development strategies cannot be seen out of the context of the position the countries take in the international circuit. This helps us to have a more precise form to the historical comparative research, avoiding calling Argentina "a banana republic" only because of the export of primary products and to see the vast differences in the mode of regulation between, for example, South Korea and Mexico. There has been a growing recognition among rational-choice Marxists of the methodological necessity of tracing the microfoundations of class analysis in postulates of individual behavior. So far this has been materialized in the "radical political economy" approach, utilized particularly in labor economics issues. In the word of Rebitzer (1993: 1395), "radical political economy" is the "off-spring of the neoclassical and Marxian economics and, like many children, it resembles its parents in sometimes surprising ways." The "radical political economy" conception of economic processes as political, remediable, and historically contingent clearly derives from the Marxian tradition to economic analysis. However, "radical political economy" has adopted neo-classical economics' concern with the careful analysis of the behavior of individual economic agents.xxviii 2.2.1 International Trade and Foreign Investment A major point of conflict between neoclassical and the other paradigms analyzed here centers around the idea of gains from trade and specialization. Neoclassical economists never tire of emphasizing the benefits of voluntary exchange based upon comparative advantage. A large number of development economists, however, are suspicious of the relative importance of exports as the engine of growth (Bitar, 1988). Some, though certainly not the majority, are deeply distrustful of trade contacts and foreign economic "intrusions", based on the historical experience of oppressive relationships between the center and the periphery. Some neo-Marxists and neo-structuralists now recognize the overemphasis of their (old) literature on the process of circulation (as opposed to the process of production) and its unduly stagnationist perspective. Neoclassical economists, on the other hand, completely ignore the historical role of foreign trade and investment in altering the structure of property rights in the economy and the balance of class forces in civil society.

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As Bardhan (1988) details, largely inspired in neo-Marxist and structuralist comments on the history of international transactions between the center and the periphery, there now exists a large theoretical literature focusing on the asymmetry in structure and performance of the two aggregative trading groups of countries. In different models one or more of the following kinds of asymmetries in the features of the center and the periphery have been assumed: (a) differential income elasticities of demand of importables and exportables (a la Prebisch-Singer); (b) asymmetry in product market structure; (c) asymmetry in labor market conditions, with inelastic labor supply in the center and unlimited supply in the periphery (a la Lewis); (d) rigidities in output in the periphery and perfectly elastic supply in the center; (e) the larger initial capital stock in the center allowing for larger external economies of scale in the production of manufactures and with profits reinvested larger cumulative advantage in manufacturing (in the models developed by Krugman); and (f) asymmetry in the generation and diffusion of technical progress in the form of both product and process innovation (also an old structuralist hypothesis). However, we know much less about "the neglected twin of trade" (Julius, 1991) foreign direct investment. We are almost in the same theoretical level in relation to multinational corporations that we were twenty years ago. The development debate on foreign direct investment has been fed by misinterpretations. As Julius (1991) points out, like the proverbial elephant described by the blind men, each of whom touches a different part, foreign direct investment is variously and inconsistently portrayed as: a) an insidious way for foreigners to buy into a country's productive assets; b) a welcome new source of jobs for depressed regions; c) a balance of payments flow that finances the United States current account deficit and recycles most of Japan's surplus; d) a tool of global companies to gain strategic advantage by shifting low-paid jobs and "cheap environment" abroad while keeping high value-added research at home; and e) a vehicle for technology transfer and an alternative to debt finance for developing countries. All are parts of the beast, but we do not know how the beast really looks like. 2.2.2. The Role of the State Development economists in the past tended to be naive in their implicit theory of the state, often displaying a touching faith in the intention and ability of government to correct market imperfections and market failures and efficiently to promote development. This confidence was particularly manifest in the structuralist writings. At the same time, there were those (neo-Marxists predominantly) theorizing the State as the guardian of vested class-based interests and, therefore, unable to be an instrument to accomplish genuine economic development. During the period of the fall of development economics, the literature became saturated with accounts of intervention failures and with proposals of "market friendly" (government) interventions, that can be considered the closest one can be to the neoclassical prescription.xxix

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We completely agree with Toye (1993) in his evaluation that structuralists and neo-Marxists did not correctly appreciate the strength of the "conscripts of the counter-revolution's" attack on the role of the state in economic activities. It seems that some scholars, unable to articulate a theory of the state, have opted for the dismissal of the state all together. It is true, however, that Neo-structuralists argue that the market needs as its complement the active and dynamic support of the State to provide not simply its classical functions (public goods, macroeconomic balances, equity) but also - "within the limits of its administrative capacity" (Ramos and Sunkel, 1993:7) - vigorously to (1) promote or stimulate missing markets; (2) strengthen incomplete markets; (3) eliminate or correct structural distortions; (4) eradicate or compensate the most significant market imperfections arising from economies of scale, externalities, and learning (arising from technology or trade), among others.xxx As Ramos and Sunkel (1993:16) themselves admit "(p)ragmatism and recent experience suggest ... the virtues of formulating a more consensual proposal on the new role of the state, encompassing traditional development thinking as well as less radical neoconservative viewpoints." In the spirit of such convergence, the essential issue "is not the size of the state but rather its management capacity and its ability to concert agents" (Ramos and Sunkel, 1993:16). The key economic roles of the State could be defined, therefore, as setting forth a strategic view of the development process; harmonizing incentives and relative prices with the objectives of that strategy; and eliciting the commitment of all social and political sectors to that strategy through dialogue and concentration. The State is less needed today in its entrepreneurial and productive functions. Nevertheless, "the identification of the most socially productive spheres for State action, and the formulation of criteria for ascertaining the optimum degree of public intervention in each, are areas in which more intensive research is needed" (Ffrench-Davis, 1988:44). 2.2.3. Income Distribution and Poverty As mentioned before, the debate on the (bi-directional) relationship between income distribution and growth has been a staple of development literature. The determination of income distribution is a fundamental difference between neoclassical/modernization school and the neo-Marxist or neo-structuralist approaches. In the former, factor markets clear to determine factor prices, while in the latter they depend on class struggle or are given exogenously (Bardhan, 1988). While in neoclassical models distribution of income responds to growth - usually based on the comforting hypothesis of "trickle-down" -, neo-Marxists and neo-structuralists usually emphasize existing structures which perpetuate and reinforce inequalities with capitalist growth. Among those structures, a major focus is on differential access to capital, unequal initial endowments and "connections", and differential consumption propensities and sector demand composition.xxxi On the question of income distribution effects of capitalist growth, in the demand-driven

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models of structuralists income distribution clearly affects the rate and pattern of growth. Existing income inequality and mass poverty may pose limits to the expansion of home market for some manufactured goods. Bardhan (1989) notes that some neo-structuralist and neo-Marxist writers, however, imply quite the opposite: increased income concentration may solve the problem of underconsumption in the key consumer durable sector. For example in the analysis of De Janvry and Sadoulet (1983) there is a critical level of income inequality above which such a process of what they call "social disarticulation" always obtains, resembling the reasoning by Samir Amin discussed before. Neoclassical development economics attaches little importance to redistribution mechanisms, since it believes that the market and growth by themselves will favor equity, without any need for direct measures to alleviate the problem. Free competition and the removal of regulations will stimulate growth and thus indirectly bring about a rise in employment levels and real wages. Little can be done to meet unsatisfied basic needs, so that efforts should be directed instead towards growth, since this improves the condition of the poorest through employment generation, rising real wages, and the trickle-down effect (Bitar, 1988). This paradigm pays little attention to structural factors in its interpretation of the root causes of income and wealth inequality and poverty.xxxii 2.2.4. Community Initiatives and Mobilization Sen (1984) reminds us that "many of the inequities of the world survive by making allies out of the deprived and the abused." The extraordinary proliferation of decentralized civil organizations in the developing countries in the last ten years or so makes Sen's words an excellent working hypothesis for development economists. Are these organizations a real new way of asserting leadership, organizing people, and allocating resources in the development enterprise? Or are governments likely to control them by enacting legal and administrative regulation to govern the voluntary sector or by alliances? It seems essential to have a sound theoretical understanding of these organizations' perceptions, concerns, and constraints. In spite of the relevance of these aspects for the design and implementation of any development strategy, it is astonishing the paucity of attention to them in the theoretical paradigms discussed above. Neighborhood associations, religious base communities, parents association, producer organizations, youth clubs, community movements, and a host of "new social movements", nongovernmental organizations (NGOs), and grassroots organizations (GRO) have emerged during a period of political hostility and/or economic hostility (De Janvry and Sadoulet, 1993). Consequently these organizations have largely defined themselves as substitutes for what the state and the market failed to offer to their specific constituencies. Bratton (1989) suggests, analyzing NGOs prominence since the second half of the 1970s, that an unusual conjunction of ideas helped to thrust these organizations into prominence at this time. From a leftist perspective, proponents of popular participation have seen them as instruments of empowerment that will enable ordinary folk to control development

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decisions. These organizations have also found favor on the right and have benefited the current fashion for the privatization of development interventions.xxxiii As indicated by Vivian (1993), these organizations have their strengths in their ability to reach poor communities and remote areas, in promoting local participation in designing and implementing public programs, in operating at low cost, in being adaptive and innovative, in identifying local needs, in building on existing resources, and in transferring technologies developed elsewhere. Whether these strengths are real or wishful thinking is a question to be answered empirically. At the theoretical level, however, we need to explore the consequences for development models and policies of two variants of the community organization strategy. Using Vivian's (1993) concepts we are dealing with: a) neoclassical populism - a belief that inequality is closely associated with market imperfections, and that community initiatives and mobilization designed to correct market imperfections will both increase efficiency and decrease inequality; and b) radical populism - that emphasizes the moral aspects of inequality and draws on anarchist and utopian traditions for the articulation of its goals. 2.3. Final Comments and Suggestions for a Research Agenda Hirschman's obituary of development economics seems to have been premature. Development economics is alive, not completely well. Its vital signs are no less pronounced than those in the rest of economics. Bardhan (1988:67) is correct in stating that through the maturation process of development economics, "...not (have) we merely have seen the 'big-push' enthusiasm of some of development

economists of the 1950s dampened by the subsequent dirigiste excesses, autarchic inefficiencies, and adverse distributional consequences of some industrialization programs, but we have also seen the feet of clay of some of their neo-Marxist and neoclassical challengers."

In this paper we did not attempt a comprehensive examination of all aspects of the alternative paradigms. Instead, we focused on a few, highly selective, areas of inquiry with a brief, impressionistic, comparative assessment of some major contributions in each area. An extension of our examination to other areas of inquiry - technical change, environment, and gender issues are major candidates - is an obvious item in a research agenda. Nevertheless, it seems clear that the differences between alternative approaches are now narrower than are generally perceived and that there is some scope for grouping together valuable insights from all of them, without underplaying their still substantially different perspectives. We showed evidence of this, analyzing for central issues in development: the opening of the economy to international trade and foreign investment, income distribution and poverty, the role of the state and community initiatives and mobilization. While these

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four certainly do not exhaust the arenas of potential conflict among the different paradigms, in our judgment they may represent a fair cross-section of some of the active disputes. Questions which remain unanswered are many and will be only briefly summarized in this conclusion. These questions should form part of a future research agenda by those interested in the theoretical approaches to development process. In analyzing the role of the state in development, contributions to understanding the informal sector in developing countries are needed. The informal sector does not contribute to public revenues, but possibly also benefits less from public expenditures as result of its "submersion". However, it is responsible for contributing considerably to employment in developing countries. The function of the government, the quantity and quality of its human resources and its political and economic alliances should also be more scrutinized. This will help in the identification of the most socially productive spheres for state action, and the formulation of criteria for ascertaining the optimum degree of public intervention in each. Moreover, as the developing world emerges from the debt crisis, so does a new balance of power between market, state, and civil organizations. Civil organizations, particularly, have assumed important functions as complements to the market and the state. These institutions enjoy a degree of autonomy from government and have direct presence among mobilized communities at the grassroots level. Whether these organizations can fulfill expectations placed on their shoulders remains to be seen. From an academic point of view it is essential to increase the explanatory power of our models to incorporate these organizations and their roles in the process of development. A key question is whether these movements will resist the return of representative democracy, i.e. whether they will be dissolved by the return of the traditional centralized forms of organization - labor unions, political parties, cooperatives, and so on. Several open questions remain when income distribution is brought into the picture. The application of the radical political economy approach to developing countries - where elements of power seems to influence distribution - might provide useful insights in this area. Also, the incorporation of endogenous growth models - particularly those that drop the assumption of competitive behavior, postulating imperfect competition - can be helpful in understanding situations in which rewards to all inputs of production do not exhaust total output, and rents can be assigned to activities which, though not directly productive, do expand the frontiers of knowledge, such as agricultural research for example. Above all, the new development economics must be an instrument to reduce barriers between paradigms, without destroying methodological particularities of each one of them. It is essential to bear in mind the words of Deane (1983: 11) in her Presidential Address to the Royal Economic Society:

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The lesson, it seems to me, that we should draw from the history of economic

thought is that economists should resist the pressure to embrace a one-sided or restrictive consensus. There is no one kind of economic truth which holds the key to fruitful analysis of all economic problems, no pure economic theory that is immune to changes in the social values or current policy problems.

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Notes i. See Gemmell (1987), Ranis and Schultz, eds. (1988), Stern (1989), Chenery and Srinivasam (1988 and 1989), and Rostow (1990).

ii. In Sachs (1992) both Esteva and Illich trace the official formulation of development policy to President Truman's incorporation of "underdevelopment" as an economic and foreign policy issue. Others sources link development to the modernist project of enlightenment and progress dominant in the last three hundred years of Western political philosophy.

iii. The nationalist movements of the newly independent nations, as well as the military suppression of independent cultures were part of the new international support of socialist ideology and economic organization. The progress made in the area of socialist planning and development in the non-aligned world was difficult to maintain, as it was under constant pressure and often direct sabotage by dominant nations. As post-Soviet experience also reveals, some of the socialist governments resorted to socially repressive policies which were difficult to maintain over time.

iv. Many of these early articles are reprinted in A. N. Agarwala and A. P. Singh, (eds.) (1958).

v. CEPAL advocated economic policies such as import-substitution industrialization as a means of reducing import demand for consumer goods and developing a more diverse economic base in order to overcome what these economists viewed as unfair exchange relations between the North and South.

vi. For example, improvements in life expectancy, child mortality and literacy rates measured as averages were found to be less valid for lower socio-economic groups in many countries.

vii. Cypher (1985:45) also attributes the decline to power shifts in North-South relations during the 1970s involving oil power, newly industrialized countries and "assertive industrialization". He cites the 1981 United Nations meeting in Cancun, organized to propose a North-south agenda, as marking the defeat of the structuralists and pro-south issues, and establishing the political dominance of neoliberal policy agenda for third world developing countries.

viii. The Basic Needs period might be considered a period of transition. Economic development was losing its association with growth and industrialization, but there was a theoretical lapse and cross-fertilization followed by a renewed concern with welfare issues within economic theory.

ix. See Edwards (1985) for an excellent discussion of these debates. Schuurman (1993) also reviews some of these debates, particularly between Marxist sociologists, following Booth's pronouncement of an impasse encountered in the field of development studies. Peet (1994), on the other hand, disagrees that such an impasse extended throughout the field of development studies.

x. The work of Schultz (1980) on human capital investment is one such example.

xi. Neoclassical welfare theory was used to justify some government intervention, as the "second best" approach to resolve problems of market imperfections. In these cases, limited government subsidies, taxes, or tariffs were

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recommended. This approach received elaborate refinement in the development of social cost benefit techniques and the determination of shadow prices. Further developments within the neoclassical framework included the analysis of disequilibrium analysis, the additional emphasis on financial market developments as a necessary element of development strategies (including the emergence of monetarist branch of neoclassical thinking as propounded by Friedman and Hayek and implemented in Chile as one of the initial neoliberal/monetarist experiments), as well as Stiglitz' important work in constructing a new neoclassical framework around the notion of imperfect information rather than assuming perfect market conditions.

xii. See Foxley (1983) for account of how neoliberal policy later had to backtrack and take these into account, which it did via structural adjustment policies.

xiii. We use the word "action" as distinct from development to note that many such groups do not agree with the ideological and political meaning of the word as it used by development agencies, and that their activities have objectives that are determined without reference to the development literature or the notion of development as progress.

xiv. Noted by North's 1993 award of the Nobel prize for his work in economic history.

xv. See for example Whitehead (1993).

xvi. See Hunt (1989) for this interpretation.

xvii. Bauer had particular experience in visiting areas of rubber growing in Malaya and of raising cocoa in West Africa.

xviii. Prebisch, like the Brazilian Celso Furtado and other ECLAC economists, stresses the central role of rising labor productivity in economic development. Only this can provide the basis for a steady increase in mass living standards. His attack on the theory of comparative advantage is linked to the empirical observations that, contrary to the theory's prediction, the benefits of technological advance in primary exporting economies are not equitably distributed relative to the manufacturing export partner. Later, Prebisch incorporates a second reason for the poor prospects for primary export expansion, a reason first advanced by Hans Singer. He argued that the downward long-term trend in the terms of trade for primary products and for relatively low growth of future primary export volumes are explained by different income elasticities of demand for primary and industrial goods. These were generally lower for primary goods and higher for industrial goods. These two reasons together form what is known in the literature as the Prebisch-Singer thesis of deterioration in the terms of trade. See Ranis and Schultz (eds) (1988) and Rostow (1990:403-407).

xix. As emphasized by Rosales (1988) and contrary to the belief of some neo-liberal critics, Prebisch suggested that the most appropriate form of intervention would consist of strengthening and diversifying domestic production structure, in accordance with criteria of productive efficiency. Prebisch also suggested government intervention in the banking sector in order to increase the supply of medium- and long-term credit and development loans, and that the State should play a sustained and far-reaching role in the sphere of technology.

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xx. It was asserted, for example, that sectoral plans needed to be formulated in order to deal with the bottlenecks affecting the economy (energy, transport, basic industries), to promote specific industries, and to strengthen the link between agriculture and industry.

xxi. The concentrated ownership of land, technological backwardness and the fact that labor was tied to the land for non-economic reasons and was therefore artificially cheap diminished the effectiveness of relative prices as an instrument for determining the allocation of resources. The need for structural transformation constituted an additional argument against an exclusive reliance on the pricing system as the main tool of development.

xxii. As pointed out earlier, and also discussed by Hunt (1989), there was, after the Second World War, a growing sense of political urgency concerning the promotion of economic development in the underdeveloped regions in order to maintain international stability and to contain the expansion of communism. The subtitle of Rostow's book, "The Stages of Economic Growth: A Non-communist Manifesto", is a good indication of that urgency.

xxiii. The main policy conclusions that follow from Lewis' analysis are that, in order to maximize the pace of economic development, governments should take the following measures: 1) use tax policy to contain premature increases in subsistence incomes, 2) restrain the premature development of trade union wage bargaining power, 3) judiciously expand the money supply to help finance capital accumulation, 4) refrain from attempting to control any resultant price inflation by fixing industrial policies, 5) protect the domestic capitalist sector from foreign competition in order to compensate for the distorted operation of the law of comparative advantage, and 6) an implicit claim that capital exports should be discouraged.

xxiv. See also Hirschman (1958).

xxv. For an excellent survey we suggest De Janvry (1981), Chapter 1.

xxvi. "Miracles without any future and take-offs that have failed." (Amin, 1977, pp. 259).

xxvii. The "theorem of the second best" states that, unless an economy is affected by only one distortion, or departure from the requirements for perfectly competitive behavior, there is no guarantee that removing the distortion will produce an increase in welfare. If there are two or more distortions, their effects can be partially or wholly to neutralize each other, and thus the removal of one of them can make the economy more inefficient than it was before. Given that, in the real world, economies rarely suffer from just a single distortion, the theorem seems to mean that there is no way of knowing whether piecemeal attempts to introduce perfectly competitive markets will raise or lower welfare.

xxviii. For an outstanding survey of the literature see Rebitzer (1993). The radical political economy approach is related to the names of Samuel Bowles, Herbert Gintis and John Roemer, to mention only a few.

xxix. As observed by Singh (1994, pp. 5): "In order for 'market-friendly' not to be a mere tautology, the (World Bank), to its credit defined the concept fairly

precisely in the following terms: a. Intervene reluctantly. Let markets work unless it is demonstrably better to step in ... [It] is usually a mistake for the state to carry out physical production, or to protect the domestic

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production of a good that can be imported more cheaply and whose local production offers few spillover benefits. b. Apply checks and balances. Put interventions continually to the discipline of international and domestic markets. c. Intervene openly. Make interventions simple, transparent and subject to rules rather than official discretion."

xxx. The first three points refer respectively to: long term capital markets and future markets in foreign exchange; the market of technology; and the heterogeneity of the production structure, the concentration of property, the segmentation of the capital and labor markets.

xxxi. Differential access to capital tends to result in differential flow of benefits from technical progress, as for example in the case of the so-called green revolution. Unequal endowments and connections lead to unequal benefits from human investment and migration, entry restrictions in quality jobs, and to further polarization. Consumption propensities and demand compositions are factors discussed in the well-known Bacha-Taylor (1976) model of "unequalizing spiral" of growth. In such a model growth starts a cumulative process in which a rise in skilled employment, in relative demand for luxury goods, and in investment in the luxury sector feed on one another, accentuating inequalities all along, particularly in relation to the wage-good sector.

xxxii. The concentration of ownership; the tenuous social and trade union organization, especially in agriculture and in the marginal urban sectors; the low levels of education; and technological backwardness.

xxxiii. Official multilateral lending institutions have made assistance conditional upon the host developing country governments' acceptance of structural adjustment policy reforms. Such reforms contain requirements for reduced economic intervention by governments and for allocation of resources by market forces. While donors may prefer the capitalist firm as a organizational model for a private sector, quite often, due to the weakness of the private sector, they are left with the alternative of working through nonprofit, voluntary institutions.