Theories of

Development
Radhika Desai

LEARNING OBJECTIVES
To understand development as an aspiration since To identify the main theoretical approaches to de-
the beginnings of capitalism and the centrality of velopment in their historical context.
the nation-state and industrialization in it. To understand the implications of the BRICS, other
To learn how development as a project emerged emerging economies, and multipolarity for the pros-
from post-war political tensions. pects for development in the twenty-first century.

To mark the 130th anniversary of the death of Karl Marx in May 2013, his hometown, Trier, Germany, hosted an installation
of 500 figures of the author and theorist created by Ottmar Hoerl. | Source: THOMAS WIECK/AFP/Getty Images

901890-03-ch03.indd 43 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

The economic and financial crises of the early less continuously, and one writer estimates that average
twenty-first century opened a new phase in the his- incomes in the rich countries were a stunning 23 times
tory of capitalist development. Three changes marked higher than those in the rest of the world in 2000 (Free-
it. First, neoliberalism, the free-market dogma re- man, 2004: 47). The “development” project emerged at
sponsible for the development crisis of recent decades, the end of World War II to abolish this divide when it
was discredited. Second, growth in the rich countries was a fraction of what it is today but was already po-
slowed to a near halt while some developing coun- litically unacceptable. Its persistent widening was the
tries, the “emerging economies,” continued their rapid clearest indicator of the failure of the development
growth, narrowing even faster the enormous gap that project.
separated their incomes and welfare from rich coun- Development suffered its worst setbacks in the re-
tries. Closing that gap had been the goal of the post-war cent decades. Beginning in the 1980s, neoliberalism
development project and, for decades, substantial pro- rolled back earlier gains. “Globalization” and “empire”
gress had eluded all but a few rather small countries, sidelined it. International showmanship disguised the
such as South Korea and Taiwan. So the faster growth, actually very modest Millennium Development Goals
particularly in China and India, which between them as radical initiatives. “Post-development” currents re-
account for a third of humanity, constitutes a mo- jected development outright as a worthy aspiration.
mentous development though it leaves out too many Worse, the new reckoning of national incomes in “pur-
countries and too many people even in the rapidly de- chasing power parities” (PPPs) rather than in US dollars
veloping countries. Finally, less spectacular but equally suggested that the problem was an optical, or rather
important, has been the turn, primarily in Latin Amer- statistical, illusion (see Chapter 1 for an explanation of
ica during the 2000s, to progressive policies that flout PPPs). PPP measures systematically placed the incomes
the tenets of neoliberalism and put popular welfare at of poor countries with low wages higher (since their cit-
the centre of the political agenda. This shift has sig- izens could theoretically afford to buy more goods and
nalled at least a start in confronting the region’s leg- services produced by their equally low-income fellow
endary social and economic inequality. citizens). Such development by statistical redefinition
After decades of pessimism under neoliberalism, added insult to the injury of low incomes by congrat-
development theory now has the altogether more hope- ulating a people for those low incomes when raising
ful task of assimilating the development experiences of them was precisely the goal of development.
today’s fast-growing economies and centre-left gov- However, as the rapid development of the emerg-
ernments for other poor countries and people. This ing economies and the popular upsurges that have
involves rethinking development in a longer-term his- produced centre-left governments in so many Latin
torical perspective, not as something that began after American countries make clear, the aspiration to de-
World War II and concerned only the poor countries velopment cannot be reversed, sidelined, diminished,
but as an aspiration that arose with the first stirrings rejected, or denied. Development may have emerged as
of capitalism and industrialism and involves today’s a project only after World War II, and a body of theory
rich and poor countries alike. Finally, the rising pro- dubbed development theory may have emerged only
ductivity of widening circles of humanity raises critical then to comprehend development’s problems and pros-
ecological questions that require development theory pects, but development as an aspiration has deep roots
to (re)consider the definition of the good life. This will in history. It is effectively the most enduring national
once again merge development theory with the wider and social urge of modern times.
body of modern social and political thought from In this chapter we begin by recalling the historical
which it originated. experience that gave rise to the development aspiration
It generally is agreed that the division of countries and the ideas that articulated it. This helps put the de-
into rich and poor began with the rise of capitalism, velopment of today’s rich countries in the same frame
and the colonialism and imperialism that went with it, as that of today’s fast developers and those yet to come.
more than five centuries ago. More importantly, with Then, we examine the origins of the development pro-
the onset of industrialism, the gap widened more or ject after World War II and the record of development

901890-03-ch03.indd 44 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

in the following decades. With this essential back- “such productive forces slumbered in the lap of social
ground, we can consider the succession of theories labour” (Marx and Engels, 1967 [1848]: 84–5).
that attempted to explain and shape the course of de- Increased production did not, however, corre-
velopment. Our conclusion assesses their theoretical spondingly increase demand since workers were not
and analytical gains and dwells on the new tasks that paid the full value of their product. So capitalism
development theory must now undertake. required, and created, a constantly expanding world
market, bringing all societies into it. It was not created,
as is popularly believed, through commerce alone:
DEVELOPMENT AVANT LA LETTRE conquest was employed equally if not more often. No
wonder the world’s first industrial capitalist country—
Development is linked to the idea of universal pro- Britain—acquired a colossal colonial empire in the
gress. It began to become widely accepted with the In- nineteenth century, despite its proclaimed commit-
dustrial Revolution, which, more than 200 years ago, ment to “free trade.” Both imperial control and world
hurled people in the northwest corner of Europe into market dynamics augmented the economic advantage
“change” and “improvement” faster than ever before of the industrial and colonizing nations and com-
and portended similar changes for other peoples. Be- pounded the disadvantage of the colonized (see
fore that, economic and social improvement had been Chapter 2). Capitalism’s geographical spread was uneven,
slow, easily reversed, and often at the expense of others. creating agglomerations of wealth in some societies
The Industrial Revolution promised absolute and rapid and pools of poverty and misery in others.
increases in wealth in which, theoretically at least, all Industrial capitalist society’s promise of general-
individuals, groups, and societies could partake. ized prosperity was broken in at least two other ways.
However, things proved more complicated. The First, because workers were paid only a fraction of the
Industrial Revolution took place amid a new social value of what they produced, incomes were unjustly and
organization of production—capitalism. It organized unequally distributed. Second, market co-ordination
production in private units whose owners had the cap- of privately organized production often broke down
ital to buy the means and materials of production and and crises, such as the Great Depression of the 1930s
the labour of workers who had no other means of mak- and today’s Great Recession, interrupted and occasion-
ing a living but to sell their labour power, their capac- ally reversed increases in production. Karl Marx’s fa-
ity to work, on the market. The market was the main mous critique of capitalism (Capital, the first volume of
mechanism for matching workers, producers, and con- which was published in 1867) encompassed all of these
sumers. Capital and markets had hitherto been either problems. Never before in human experience had so-
absent or constrained by social custom and political cieties been governed by such unjust, impersonal, and
regulation. Under capitalism, they came to govern uncontrolled institutions.
more and more of the social product, and custom and Ideas of “progress,” what we now call “develop-
regulation changed to serve rather than constrain them ment,” emerged out of the tension between the tan-
as new capitalist states became committed to creating talizing possibilities for general human welfare that
and maintaining this type of productive order. industrial capitalism offered and their failure to ma-
Production and human productive capacity, no terialize for a majority of the people in the world under
longer bridled by any social or political estimate of capitalism. Modern social thought is largely a series of
need, expanded massively and societies that had been attempts to comprehend and master the deeply con-
agricultural for millennia were transformed into indus- tradictory dynamic of capitalism for human societies.
trial ones. As Karl Marx and Friedrich Engels memora- Except for short-sighted and vulgar celebrations and
bly put it, the new industrial capitalists “created more condemnations, all accounts of industrial capitalist
massive and more colossal productive forces than . . . society, whether “economic” or “philosophical,” re-
all preceding generations together” by systematically flect capitalism’s double-sidedness. Marx’s critique
applying science to production and improving technol- of capitalism’s injustice and anarchy was balanced by
ogy, remarking that earlier centuries had no idea that an appreciation of its prodigious productivity. Adam

901890-03-ch03.indd 45 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

Smith’s An Inquiry into the Nature and Causes of the occurred unevenly, concentrated in some parts of the
Wealth of Nations (1937 [1776]) may have celebrated world and economically subjugated, through coloni-
the Industrial Revolution but Smith was no advocate zation or other means, other parts of the world. Colo-
of unbridled free markets. Rather, Smith was a thinker nized or less powerful peoples experienced capitalism
who believed that markets needed to be controlled by not as development but as lack, deprivation, imposition,
the moral sentiments and relations that constituted domination, and exploitation. They “learned quickly
society’s necessarily human basis (Göçmen, 2007). As enough that Progress in the abstract meant domina-
the onward march of capitalism tended to replace those tion in the concrete, by powers which they could not
sentiments and relationships with the dreaded “cash help apprehending as foreign or alien.” Development
nexus,” a mere four decades after the publication of elsewhere threatened to wash over them like a “‘tidal
Smith’s Wealth of Nations, thinkers such as the great wave’ . . . of outside interference and control” (Nairn,
German philosopher Georg Wilhelm Friedrich Hegel 1981: 338).
saw the state as indispensable for correcting and oppos- In response, colonized and less powerful peo-
ing corrosive market forces. ples sought to create nations as barriers against such
State regulation is not necessarily socialist. The tidal waves to avoid being “drowned” by them. Such
frequency of “market failure” in capitalism more or national assertion worked against economic and im-
less guarantees that economic or market regulation perial pressures to undertake combined development—
will be supplemented by state or political regulation. hot-housed, state-led development of production.
Karl Polanyi’s idea of a “double movement” captures Though these efforts were not universally successful,
this aptly. Market failure was endemic to capitalism, this process eventually resulted in the nation-state
he argued, because it treated land, labour, and cap- system. As Benno Teschke (2003: 265) has noted:
ital (i.e., social and productive organization) as com-
modities even though they were not produced for sale. the expansion of capitalism was not an eco-
Therefore, markets alone cannot regulate an economy nomic process in which the transnationalising
and “no economy has existed that, even in principle, forces of the market or civil society surrepti-
was controlled [purely] by markets” (Polanyi, 1944: tiously penetrated pre-capitalist states, driven
44). The nineteenth-century spread of market society by the logic of cheap commodities that even-
provoked a countervailing movement: “While on the tually perfected a universal world market. It
one hand markets spread all over the face of the globe was a political and, a fortiori, geopolitical pro-
and the amount of goods involved grew to unbelievable cess in which pre-capitalist state classes had
proportions, on the other hand a network of measures to design counterstrategies of reproduction to
and policies was integrated into powerful institutions defend their position in an international envi-
designed to check the action of the market relative to ronment which put them at an economic and
labour, land and money.” It was “a deep-seated move- coercive disadvantage.
ment” through which “[s]ociety protected itself against
the perils inherent in a self-regulating market system.” Some countries, pre-eminently the United States,
This “double movement” was “the one comprehensive Germany, and Japan, not only defended themselves
feature of the history of the age” (Polanyi, 1944: 76). against economic and political subjugation to the
While Polanyi thought of the “double movement” world’s first industrialized country, Britain, but also
operating within societies, the emergence of nations challenged its supremacy. Armed with the ideas of
and the problem of national development can be seen thinkers who exposed the ruling free trade ideology
as part of the operation of a similar sort of double as merely the dogma and ruling ideology of British su-
movement at a geopolitical level. Although nations of- premacy, they promoted the national development of
ten are seen as cultural entities, they are products of the their countries through political means. For thinkers
“machinery of world political economy” (Nairn, 1981: such as Alexander Hamilton and Henry Carey in the
335–6), specifically, of its uneven and combined de- United States and Friedrich List in Germany, free trade
velopment (Trotsky, 1934: 26). Capitalist development concentrated and reinforced the economic advantage

901890-03-ch03.indd 46 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

of some countries as much as conquest did, creating an subjugation for the so-called “late industrializers,” such
international division of labour in which some coun- as Germany, the US, and Japan, lay in an intellectual
tries produced higher-value manufactured goods and and practical critique of “free trade” and was aided by
others lower-value agricultural, primary, or (today extensive colonies. The way out of actual subjugation
also) cheap, low-tech, manufactured products. It could for the developing countries of the post-war period and
be challenged only by non-market, political means. the emerging and BRICS economies of today requires,
Contrary to ideologies of free trade and its in addition, undoing the effects of imperialism and
modern-day equivalents, neoliberalism and globali- doing so without colonization. That effort was and re-
zation, national development has always been, and mains much more difficult.
remains, a matter of state management of trade and
production to enable the economy to produce higher-
value goods, while managing a transition in agriculture THE MOMENT OF DEVELOPMENT
to make it more productive and capable of fulfilling
the greater demands of industrial society. This un- The development project that began in earnest after
derstanding exposes the conventional economic idea World War II marked a historic turnaround. After cen-
of “comparative advantage,” in which the productive turies during which colonizers justified colonialism
specialization of each nation—essentially, industrial with racist rationales such as the white man’s burden
powers producing industrial goods and colonies or and his “civilizing mission,” colonial and imperial ex-
weaker countries producing raw materials and agricul- ploitation, oppression, and plunder were at last recog-
tural goods—was to be accepted without question, as nized for what they were. As decolonization began, the
little more than a justification for the unequal interna- development project aimed to reverse these realities
tional division of labour. Since it was created both by and aid the poor countries’ “catching up” to the rich
commerce and by conquest, political means are indis- world’s levels of income and material welfare.
pensable for breaking out of inherited specialization in This historical moment was long in the making
low-value goods and to begin producing higher-value and the result of the interaction of a range of actors—
goods as the road to prosperity. the US government, the Soviet Union, and (not least)
This is exactly what is going on in the BRICS (Brazil, national governments of newly independent but poor
Russia, India, China, and South Africa) and emerging nations, with different and sometimes even opposed
economies, China in particular, but with one critical motivations—emerging from the “30-year crisis” of
difference. In the late nineteenth century, Britain’s 1914–45, spanning two world wars and a Great Depres-
industrial challengers, rejecting the breezy free-market sion (Mayer, 1981). It was the crucible of a new world
ideas that demand and supply would balance each order. Three massive changes produced and defined
other out—an idea that only served to disguise the the “moment of development” as the Thirty Years’
critical role of colonies as suppliers and markets (Desai, Crisis ended. First, the US temporarily emerged as
2010)—and that “comparative advantage” would the world’s most powerful capitalist nation. Though it
ensure the common prosperity through free trade, had become the largest single economy by1913, it came
aimed to ensure the supply of industrial raw materials to account for fully half of world production by 1945,
and the markets for their products in part by creating thanks to the destruction two world wars had caused
and expanding formal empires. Imperial competition in Europe and elsewhere. Without much of a formal
intensified in the closing decades of the nineteenth empire of its own, the US began to sponsor decoloni-
century and culminated in World War I. By contrast, zation, reconstruction, and development to cut its cap-
the “developing” countries of the second half of the italist rivals down to size and to take up the capitalist
twentieth century had been formal or informal colo- world’s leadership.
nies that could not acquire colonies of any significance A second change made development urgent
to facilitate their industrial development. for the US-led capitalist world: the Soviet Union,
This difference keeps the question of development formed after a Communist revolution in the midst of
and imperialism intertwined. The way out of potential World War I, had experienced remarkably successful

901890-03-ch03.indd 47 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

industrialization based on state planning and direc- as much as of their interaction. The experience of the
tion while the capitalist world languished in the Great Great Depression in capitalist countries, the contem-
Depression. This industrialization proved critical in poraneous success of state-directed industrialization of
the Allied victory in World War II, and Soviet power a predominantly agrarian economy in the USSR, and
and prestige balanced US power in the Cold War that the unavoidable necessity of comprehensive planning
followed as the Communist world, which now also during war, which proved so popular for its egalitarian
included the Communist regimes in Eastern Europe effects, had taught
and China, not only truncated the size of the capitalist
world but also became an alternative pole of attraction the politicians, officials and even many of the
for newly independent countries, forcing the US into businessmen of the post-war West . . . that
“altruistic” grooves to keep or wrest poor countries a return to laissez-faire and the unrecon-
from the attractions of communism. Third, after World structed free market were out of the question.
War I, many national liberation movements, supported Certain policy objectives—full employment,
by the revolutionary Soviet government, had demanded the containment of communism, the mod-
decolonization. Only after World War II, however, did ernization of lagging or declining or ruined
the US consistently support it to undermine its capi- economies—had absolute priority and justi-
talist rivals and compete against the Soviet bloc for the fied the strongest government presence. Even
support of nationalist movements and governments. regimes dedicated to economic and political
Together these developments placed the “catch-up” liberalism now could, and had to, run their
of former colonies to the levels of prosperity of rich economies in ways which would once have
countries on the world agenda. This was the develop- been rejected as “socialist.” (Hobsbawm, 1994:
ment project—in a critical sense the ransom that the 272–3)
capitalist world had to pay to keep poor countries from
communism. They were the stakes in the Cold War, This new consensus held that the ills of capitalism
which turned hot in such cases as Korea, Cuba, and could be remedied by planning, state ownership, and a
Vietnam. large state role in making capitalist economies more pro-
Development has come to mean many things— ductive as well as more egalitarian through welfare and
rising levels of education, political participation and redistributive measures. The economist John Maynard
democracy, urbanization, technology, health and Keynes, who witnessed the collapse of economic activ-
welfare—but higher incomes and greater material ity during the Great Depression, recommended that at
welfare were critical, and industrialization and state such times the government could step up its activity to
direction were seen as essential to achieving them. And compensate and loosen money supply to restart private
they remain equally essential today even though pop- economic activity. Keynesian policies, which intruded
ulist, neoliberal, and postmodern discourses of the late less on the private capitalist economy than Soviet-style
twentieth century insist otherwise and portray states as planning, formed the basis of post-war macroeconomic
inherently oppressive and industrialization as unnec- management in the rich countries and of early ideas of
essary, indeed positively harmful, for poor countries “development,” though Keynes’s ideas were actually far
(for a critique, see Kitching, 1982). The poor countries more radical than these policies implied (Desai, 2009).
were predominantly agricultural and the rich coun- With the free market abolished in the Communist
tries predominantly industrial. Industry provided the countries and restricted and regulated in the advanced
critical advantage in productivity. Thus, development capitalist and developing economies, a “golden age” of
involved industrializing predominantly agricultural capitalism ensued, demonstrating that the “economy
economies, as had already happened in rich societies, of private enterprise (‘free enterprise’ was the pre-
and the state was its agent. ferred name) needed to be saved from itself to survive”
Intellectually, development was the product of the (Hobsbawm, 1994: 273) and, ironically, saved by the in-
confrontation between capitalism and communism struments of its enemy, socialism and communism.

901890-03-ch03.indd 48 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

The international counterpart of these domestic and governments needed to balance politically weak
policy instruments was the governance of trade and fi- capitalist forces against the strength of socialist and
nance through a set of rules, pre-eminently capital con- communist forces and popular hopes aroused by na-
trols, and institutions—the so-called Bretton Woods tional liberation movements. In India, Egypt, and
institutions, of which the International Monetary Fund Indonesia, for example (Ahmad, 1992: especially 297–
(IMF), the World Bank, and the General Agreement on 304), the “Third World” was understood as a “third
Tariffs and Trade (GATT) were the most important (see way” between capitalism and communism. Although
Chapters 9 and 15). During the 1950s and 1960s, at least, “development” meant the development of capitalism,
these controls and institutions worked to enable national planning and state direction were to make it a reformed
economic management for growth and development. capitalism: more productive and egalitarian than the
liberal capitalism that had come to grief in the inter-
Capital was not allowed to cross frontiers war period. Indeed, so low had capitalism’s reputation
without government approval, which permit- sunk in the Thirty Years’ Crisis that the capitalist world
ted governments to determine domestic inter- was on the defensive and avoided using the term “cap-
est rates, fix the exchange rate of the national italism,” preferring to deploy “development” and “free
currency, and tax and spend as they saw fit to world” in its ideological war with Communism.
secure national economic objectives. National
economic planning was seen as a natural ex-
tension of this thinking, as were domestic DISPUTING DEVELOPMENT
and international arrangements to stabilize
commodity prices. It is not a great oversim- With conducive national and international institutions
plification to say that “development theory” and policies in place, a two-decade-long “golden age” of
was originally just a theory about the best growth of unprecedented tempo and duration ensued.
way for colonial, and then ex-colonial, states Third World economies were swept along, though crit-
to accelerate national economic growth in this ical problems remained. The continuing dependence of
international environment. The goal of devel- many Third World economies on commodity exports
opment was growth; the agent of development was the most important. Despite their attempts to in-
was the state and the means of development dustrialize, and despite some significant successes, too
were these macroeconomic policy instru- much of the growth of Third World economies in the
ments. (Leys, 1996: 6–7) 1950s and 1960s originated in high demand for pri-
mary products by the First World, perpetuating rather
Of the numerous terms and euphemisms that have than breaking colonial economic relationships. Both
emerged over the decades to refer to the poor countries First and Third World dominant classes had vested
of the world and what they shared despite their diver- interests in the continuation of these relationships and
sity of cultural and material endowments—developing, were able to keep them in place: clearly, decolonization
underdeveloped, post-colonial, less developed, back- and development marked breaks from the past but of-
ward, Southern, and so on—the term “Third World” ten of an ambiguous sort.
best captures the tensions of the development project’s Even with these shortcomings, in retrospect this
formative historical moment (see also Chapter 1). First, “golden age” was development’s best. Neither world
these countries sought to balance the capitalist First growth nor Third World growth has reached such
World and the Communist Second World in interna- long-term rates since then. Beginning in this relatively
tional politics, particularly through the Non-Aligned optimistic period, and continuing over the next dec-
Movement (NAM) formed at the Bandung conference ades as prospects for development dimmed, a succes-
of 1955 to assert independence from Cold War blocs sion of development theories, outlined in Table 3.1,
and put issues of importance to development on the held sway, with stimulating debates punctuating each
world agenda. Second, most nationalist leaderships transition.

901890-03-ch03.indd 49 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

TABLE 3.1 | Theories of Development

Theory/ Emergence/ Discipline/
Theme Dominance Thinkers Tradition
Development 1950s Lewis, Keynesian Low-level Injection of capital
economics Rosenstein- economics equilibrium and management
Rodan of disequilibria
to put economy
on a growth path
to high-level
equilibrium

Modernization Late Rostow, Shils, Weberian/ Traditional Modernization

theory 1950s Pye, Almond, Parsonian society through diffusion
Huntington sociology of modern values
and institutions

Dependency 1960s Cardoso, Frank, Prebisch-Singer Dependency Delinking, fully

theory Wallerstein, thesis, Economic within a world or partially, or
Amin Commission for capitalist system socialism
Latin America
approach,
Marxism

Marxism 1970s Brenner, Warren Marxist theory Articulation Not prescriptive

of modes of of modes of but development
production production of capitalist
relations of
production/
socialism

Neoliberalism 1970s– Bauer, Balassa, Neo-classical, State Free markets

present Kreuger, Lal marginalist intervention
economics,
Austrian
economics

Developmental 1970s– Amsden, Listian Free markets State management

states present Haggard, Chang, national “neo- of the economy
Reinert mercantilist” to increase
political economy productivity,
equality, and
technological
upgrading

Development Economics variety of labels: from an idealistic promotion

of “public happiness” to the nationalistic cre-
Development economics was the first theory of devel- ation of wealth and greatness of nations and
opment and it was simply the contemporary form of rulers, and the winning of wars. (Jomo and
posing the perennial questions of economics. Reinert, 2005: vii)

For centuries economics was—at its very Development economics was predominantly Keynes-
core—an art, a practice and a science devoted ian and saw capitalist crises such as the Great Depres-
to “economic development,” albeit under a sion as products of cyclical deficits of demand, which

901890-03-ch03.indd 50 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

made capitalists reluctant to invest in productive plant of Development Economics was not initially called into
and eager to keep their capital “liquid.” The state could question.
remedy this through fiscal and monetary macroeco-
nomic policies to increase state spending and expand
credit at the beginning to buoy up investment and con-
Modernization Theory
sumption and “smooth out” the highs and lows, restor- Sure enough, by the late 1950s it was clear that, while
ing equilibrium at high levels of employment of labour most developing countries grew, none was launched on
and capital. The state was also seen to provide health a path to self-sustaining industrial growth. Modern-
care, education, and social safety nets, such as institut- ization theory now emerged to pin responsibility on
ing unemployment insurance and public pensions, and social and political factors largely outside the purview
to own and operate key industries. of development economics and to supplement econom-
Keynesians sought to accelerate growth in de- ics with sociology and political science in theorizing
veloping countries by injecting capital and pursu- the preconditions for, and obstacles to, development,
ing macroeconomic policies adapted to developing which it conceived as the “modernization” of “tradi-
economies. Assumptions that applied to developed tional” societies.
economies, such as decreasing returns to scale, la- Walt Rostow’s Stages of Economic Growth, in
bour scarcity, and “perfect competition,” did not which economics was central without being the ex-
apply to developing ones: labour was far from fully clusive focus, marked the transition between develop-
employed while capital and technology were very ment economics and modernization theory. Relying on
scarce. Equilibrium was also undesirable: disconti- the growth experience of the developed countries and
nuities and disequilibria were necessary to achieve a combining it with an appreciation of key social and po-
quantum leap to a higher growth path in “stagnant” litical factors that facilitated growth, Rostow discerned
economies in low-level equilibrium. As W.A. Lewis five broad states through which “traditional” societies
saw it, for example, largely agrarian labour-surplus passed to become modern “high mass consumption”
economies had to be put on an industrial growth societies—“traditional,” “preconditions for take-off,”
path such that employment in industry made labour “take-off,” “drive to maturity” and “modern.” Tradi-
scarce enough for wages to rise (Ros, 2005: 89–91). tional agricultural societies had “pre-Newtonian” at-
The great initial effort needed to put an economy titudes towards nature and thus suffered low levels of
onto a self-sustaining growth path invited com- technology and growth. The preconditions for take-off
parison with an airplane taking off: “Launching a were fulfilled by key economic changes, including
country into self-sustaining growth is a little like trade expansion and increases in investment, but the
getting an airplane off the ground. There is a critical creation of a national state was critical. While these
ground-speed which must be passed before the craft changes had occurred more or less autonomously in
can become airborne” (Rosenstein-Rodan, 1961, England and Western Europe, in most countries they
quoted in Ros, 2005: 81). were the result of external pressures that undermined
While Keynesianism legitimized national eco- the structures of “traditional societies.” Take-off would
nomic management, its tools were macroeconomic occur when total investment in the economy reached
and aimed to adjust or massage national economies. 10 per cent of GDP and both industrial and agricultural
They paled in comparison with the policies of Listian productivity outstripped population growth. The drive
industrialization employed in the rise of the first set to maturity featured further instalments of growth and
of nations (the US, Germany, and Japan) to challenge modernization of the economy with the production of
the then-existing world division of labour, let alone the a more diverse range of goods, including technologi-
means employed in Soviet industrialization. In retro- cally sophisticated ones, and greater integration into
spect, whether they could overturn the even wider gap the world economy. High mass consumption society
in incomes and productivity that now lay between the was the end state where average incomes were high and
First World and the Third was doubtful. At the time, consumption expanded beyond basic needs. Societies
however, the mood was optimistic and the effectiveness could then institute welfare states and also spend more

901890-03-ch03.indd 51 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

on the military as they sought to project their power The Structure of Social Action (1937), a breezy adapta-
internationally. tion of Max Weber’s complex and rather gloomy so-
Rostow’s account bore all the marks of moderni- ciology of modernity. “Modernity, Parsons believed,
zation theory: consciousness of the stakes in the Cold implicitly but fundamentally, formed a coherent,
War (he subtitled his work A Non-Communist Man- unitary, uniform and worthwhile whole, and had to
ifesto); an assumption that the First World was the be apprehended by a social science that shared these
model and end state for the Third; optimism about qualities” (Gilman, 2003: 75). Though not concerned
the prospects for growth in the Third World; and an with the Third World, the overall question that framed
assumption that the First World would be instrumen- Parsons’s study—“what made the West different?”—
tal in promoting it. His observation that the danger eminently suited Cold War modernization theory. His
of Communism was greatest when the preconditions “pattern variables” (see Table 3.2) distinguished mod-
for take-off were being met because conflicts were ern from traditional societies by opposing them and
most likely during that period also anticipated mod- modernization theory merely added that development
ernization theory’s authoritarian turn under Samuel occurred when modern characteristics—values and in-
Huntington. stitutions, in addition to capital and technology—from
Unlike Rostow’s economic history, the principal the formerly imperial “modern” were “diffused” to the
modernization theorists employed sociology and po- ex-colonial “traditional” countries until they matched
litical science, relying particularly on Talcott Parsons’s the former as closely as possible. For modernization
© Images of Africa Photobank/Alamy Stock Photo

| Oil refinery and storage tanks on the outskirts of Kisumu town on the road to Maseno in western
Kenya, East Africa.

901890-03-ch03.indd 52 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

TABLE 3.2 | Parsons’s Pattern Variables or Roles in Traditional Society

and Modern Society

Affectivity
Predominance of roles that give affective or emotional Predominance of roles whose performance is
gratification affectively neutral
Ascription Achievement
Predominance of roles according to non-achievable Predominance of roles in which achievement is the
status or attributes (sex, age, family position, etc.) basis of status
indifferent to quality of performance

Predominance of roles in which a number of functions Predominance of roles specific to particular functions,
may be combined: e.g., family memberships and as in a bureaucracy
work on a farm
Universalism
Predominance of roles in which expectations are Predominance of roles in which performance is
particular to the status of the performer measured irrespective of the status of the performer

Predominance of roles oriented towards the collective, Predominance of roles in which private self-interest is
such as society or kinship group the prime motivation

theory the obstacles to “modernization” lay in local under Lyndon Johnson. He was widely known as the
and inherited “tradition.” chief architect of the Vietnam War.
This narrative of modernization simply assumed
away the history of imperialism. The “traditional” soci- Rostowians saw the world locked in a commu-
ety was in a state before capitalist development, which nist–capitalist struggle whose outcome would
would now be brought to them through capital injection be decided in the developing areas. South Vi-
and/or “diffusion” of modern values and institutions etnam was the linchpin in this struggle. Under
that required increasingly close contact—economic, Walt W. Rostow’s guidance, the Doctrine be-
social, political, and cultural—with formerly imperial came the primary tenet of American policy to-
countries. While a liberal wing of modernization ward the developing areas in the 1960s and the
theory assumed that modernization was inevitable and principal rationale for US intervention and con-
imminent and would lead to democratic orders, there duct in Vietnam. . . . The international order de-
was also a darker side to the theory. pended on whether the developing areas could
Modernization scholars identified closely with the be “modernized”—a process Rostow equated
world aims and activities of the US but, to their disap- with Western-style economic development.
pointment, most of them never became influential in (Grinter, 1975, quoted in Gilman, 2003: 249)
making US or World Bank development policy. Instead
they inhabited the well-funded US government spon- Samuel Huntington never attained high office
sored “area studies” departments that sought to know but did exert a chilling influence on US policy in Vi-
parts of the world that Washington was interested in etnam. Having given up on democracy in the Third
or had become involved in. A couple of modernization World, preferring “order” instead because “the most
theorists did become influential in US foreign policy. important political distinction among countries con-
Walt Rostow served as head of the policy planning staff cerns not their form of government, but their degree of
under John F. Kennedy and as national security adviser government,” he advocated “urbanization” in Vietnam,

901890-03-ch03.indd 53 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

including by bombing and defoliating, to undercut theory studied the whole capitalist “world system.”
rural support for the enemy. As one of his colleagues Whereas modernization theory assumed that the
remarked, “Sam simply lost the ability to distinguish problem of development was an original state of
between urbanization and genocide” (Ahmad, 1992, non-development, dependency theory argued that a
quoted in Gilman, 2003: 233). single and integrated historical process of world capi-
Huntington’s trajectory revealed the deeply talist development developed some countries and un-
anti-democratic currents in post-war US intellec- derdeveloped others. Whereas modernization theory
tual life: modernization theory’s core understanding assumed that development would help “traditional”
of development as a transition from traditional to societies “catch up” with “modern” ones, the stronger
modern society itself contained the seeds of its later forms of dependency theory insisted that develop-
anti-democratic turn. When optimism about, and then ment was impossible under capitalism: socialism was
patience with, populations allegedly under this tran- the only solution. Whereas modernization theory saw
sition wore out, breezy optimism about democracy the elites of “traditional” societies diffusing modern
could easily turn into an authoritarian concern for values, ideas, practices, and institutions to the rest,
order (Gilman, 2003: 45–63; see also Cammack, 1997; dependency theory saw them collaborating with im-
O’Brien, 1971; the key text is Huntington, 1969). perialism to produce underdevelopment. Rather than
Modernization theory was less the basis of policy conceiving the world economy as divided between “tra-
in the developing countries and more the basis of the ditional” and “modern” societies, dependency theorists
US government’s involvement in them. As such, its va- saw it as divided between an advanced industrial “core”
lidity was protected from policy challenge. It remains and a largely agricultural “periphery.”
the dominant paradigm governing the understanding The varied strands of dependency can be traced
of the Third World in the US to this day. By the end to two principal sources. The first was the UN’s Eco-
of the 1960s, however, the “golden age” of capitalist nomic Commission for Latin America (ECLA) under
growth had ended. As it came to an end, the comfort- Raúl Prebisch in the 1950s. He challenged conventional
able assumptions of modernization theory soon were development economics in two ways. First, Prebisch
challenged. contested conventional development economics, which
assumed that trade between the centre and the periph-
ery would generate development. Rather, he argued,
Dependency Theory it would exacerbate inequalities between them. He
Dependency theory remains to this day the most sig- pointed to the experience of the two world wars and
nificant challenge to mainstream understandings of the intervening Great Depression when trade between
development. The dependentistas reinstated the history Latin America and the core countries was disrupted
of imperialism in the understanding of development, or and Latin American countries diversified and industri-
lack thereof, and sought to theorize post-war informal alized. These gains were being lost in the post-war re-
imperialism through concepts like “neo-colonialism.” sumption of close trading relations with core countries.
Not surprisingly, perhaps, dependency theory originated Second, reflecting on the experience of the peripheral
in Latin America, the one region of the Third World countries during the “golden age” he, in parallel with
where, although the vast majority of nation-states had Hans Singer, took issue with conventional trade theory.
been independent for more than a century, underdevel- It supposed that trade between industrial and agricul-
opment remained a problem and where some countries, tural countries would eventually favour the latter be-
such as Argentina, had had levels of income and welfare cause they would benefit from advances in technology
to rival the rich countries at the end of World War II but in industrial countries, reducing the prices of industrial
fell rapidly behind in the following decades. goods faster than the prices of agricultural goods. The
Dependency theory turned the central assump- Prebisch-Singer thesis argued that instead of permit-
tions of modernization theory on their heads. Whereas ting the prices of industrial goods to fall in tandem with
modernization theory studied countries, dependency technological progress, advanced industrial countries

901890-03-ch03.indd 54 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

kept the benefits of technical progress by keeping prices To Palma’s classification we must add the theories
high while prices of primary products tended to decline of Samir Amin, a major theorist of dependency from
as more producers and countries entered the market. Africa; he differed from dependency theorists’ claim
The second major source of dependency theory that underdevelopment was a capitalist condition, see-
was the work of Paul Baran. Baran sought to under- ing it instead as the result of a combination of capital-
stand how imperialism worked in the second half of ist and pre-capitalist structures in peripheral societies.
the twentieth century—when the Third World was He did, however, think that selective delinking from
composed of formally independent nation-states, not the world economy could be combined with a broadly
colonies. The classical theories of imperialism pro- based and internally generated process of capitalist ac-
posed by Marxist intellectuals and leaders, including cumulation and development.
Lenin, in the early twentieth century understood im- No discussion of dependency theory is complete
perialism and imperialist competition of the time as without mention of the related “world system” ap-
endemic in, and necessary to, capitalism: both would proach. It relied on the French Annales school of his-
be ended only by socialism. Baran furthered this anal- torians, in particular Fernand Braudel, whose detailed
ysis, arguing that capitalism was a hierarchical inter- history of world capitalism drew on Marxism but also
national system based on a transfer of surplus from differed from it by defining capitalism in terms of mar-
underdeveloped to developed countries—a process in kets, not the relations of production. For Immanuel
which multinational corporations played an increas- Wallerstein, the most prominent representative of the
ingly important role, blocking industrial development world system approach, the capitalist world economy
and producing stagnation and underdevelopment in resulted from the centuries-long expansion of a world
the poor countries. market centred on Europe from the fifteenth century.
Dependency theory had many strands: politically, Though it contained various political and economic
many dependency theorists spoke as representatives of forms, it was and remained a worldwide capitalist econ-
their own national bourgeoisie, “chafing at its subor- omy with a unified character. No unit within it could
dination to the interests of foreign companies and the be analyzed separately. This structure generated “une-
influence of the US state in domestic politics” (Leys, qual development and therefore differential rewards . . .
1996: 12) or they sided with the working class and there was the differential of the core of the European
other radical currents. Theoretically, Gabriel Palma world economy versus its peripheral areas, within the
(1981) classified dependency approaches in terms of European core between states, within states, between
how much each theorist thought development possi- regions and strata” (Wallerstein, 1974: 86). This capital-
ble. Some currents merely pointed to the difficulties of ist world economy was divided into a core, a periphery,
development. A second current, which included Palma and a semi-periphery, and though at times the position
himself, F.H. Cardoso (who would become president of individual countries changed, the overall structure
of Brazil), and Enzo Faletto, focused on “concrete sit- was unchanging.
uations of dependency” and on how external obstacles Dependency turned out to be a mere mirror im-
were complemented by domestic class configurations age of modernization theory: the one inevitabilist, the
to impede development. They also believed that some other impossibilist. Most dependentistas dismissed the
capitalist development—“dependent development”— possibility of autonomous national development in the
was possible within these parameters. Peter Evans context of the powerful and varied structures and prac-
(1979), for instance, analyzed how a “triple alliance” of tices of imperialism that persisted despite the nominal
state capital, domestic capital, and foreign capital had independence of Third World countries. While this
determined the actual pattern of industrialization in was one-sided, dependency scholarship deepened our
Brazil. Finally, there were those—pre-eminently Andre understanding of the specific mechanisms of imperial-
Gunder Frank—who argued that no real development ist subjection and exploitation, which Marxists tended
was possible without socialism and a delinking from to ignore because they focused on how workers, rather
the structures of world capitalism. than on how nations, were exploited. Dependency

901890-03-ch03.indd 55 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

scholars generated a wealth of writing on the operation rise to the ideas of development and progress in the
of “unequal trade” (Emmanuel, 1969); multinational first place. A brief review of the Marxist critique of de-
capital (Hymer, 1972); and debt, aid, and the official pendency makes some of the implications of depend-
development organizations (e.g., George, 1988; George ency’s one-sidedness clear.
and Sabelli, 1994; Hayter and Watson, 1985; Payer, Dependency and world system scholars main-
1991), all of which illuminated how imperialism and tained that the inclusion of new areas or countries
dependency characterized world capitalism. into the world market was sufficient to deem them
capitalist and if the results were different, even oppo-
site, from those in the core lands of capitalist accu-
Marxism mulation, well, that was imperialism and dependency
Marxists had long understood capitalism as a con- for you! Their Marxist critics begged to differ: capital-
tradictory and unjust, crisis-prone and exploitative ism was a matter of the social relations of production
form of society that had nevertheless vastly improved (and not only exchange) and world market inclusion
human social productive capacity. Although they did not always lead to the development of capitalism:
claimed to be Marxists, dependency and world sys- Latin American latifundia (large agricultural estates)
tem theorists focused on the negative effects of capi- and Eastern Europe’s “second serfdom,” not to men-
talism through the exploitation and subordination of tion the still-numerous peasantries of the world, all
countries. It was, however, the success of capitalism in constituted forms of world market incorporation that
spurring human social productive capacity that gave did not lead to the development of capitalist relations
Paul Haslam

| The revolution in Cuba was central to the development of dependency theory.

901890-03-ch03.indd 56 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

of production. While the “articulation of modes of The US had imposed the dollar on the world at
production” approach of these Marxists was theo- Bretton Woods but providing dollar liquidity by run-
retically rich (see, e.g., Laclau, 1977; Brenner, 1978; ning current account deficits had never worked and
Banaji, 1977), and while the debates between Marxists never could work, thanks to the “Triffin Dilemma”
and dependentistas enriched our understanding of pointed out by the Belgian economist Robert Triffin
the range of different types of world market inclusion (Desai, 2009). The dollar was falling in value and, by
and their specific effects—for instance, such inclusion 1971, its gold backing had been removed. Converti-
on terms of merchant capital tended not to develop ble currencies now floated against each other, creat-
capitalism but only to reinforce pre-capitalist forms ing great financial uncertainty while the expansions
of exploitation—they also revealed that the Marxist of international financial flows and inflation of asset
idea of capitalist exploitation had been reduced to the bubbles that now became systematically necessary for
extraction of surplus value from wage workers alone. the dollar to serve as world money (Desai, 2013) added
It had little purchase on understanding how underde- vastly to it. The Third World became caught up in the
velopment was created and how nations could subor- earliest of these, the vast increase in international
dinate and exploit other nations. bank lending in the 1970s, in a way that would prove
Marxists kept open the possibility of an end to fateful for them.
underdevelopment through the development of capi- In reaction to the falling dollar, the Organization
talist relations of production, and some criticized them of Petroleum Exporting Countries (OPEC) dramati-
for underestimating the problems of the Third World cally raised oil prices from approximately $2 per bar-
(Lipietz, 1982). And in doing so, they did question rel to $39 in the 1970s. This had a devastating impact
the “impossibilism” of dependency approaches, point- on all oil-importing countries and was particularly
ing to counter-indications, particularly the “mirac- punishing for many in the Third World. However, the
ulous” rise of the East Asian Newly Industrializing financial results of these oil price increases had the un-
Countries (NICs) and the more widespread phenom- expected result of facilitating faster industrialization
enon of industrialization in a great number of Third in many Third World countries. As some relatively
World countries that was becoming clear in the 1970s successful industrializers broke ranks to forge ahead
(Warren, 1973, 1980). while most others began sinking into a mire of eco-
nomic stagnation or decline (political instability and
social disintegration that would worsen in coming
Neoliberalism decades), the already disparate Third World began to
The 1970s marked a watershed in the story of devel- diverge even more.
opment. Growth in the world economy slowed as the Successful Third World industrialization in the
post-war recovery of Western Europe and Japan, which 1970s occurred at a unique conjuncture. International
had been the main motor of “golden age” growth, was interest rates, never very high in the post-war pe-
completed and new problems emerged, including slow- riod thanks to the “repression of finance” during the
ing productivity growth, worker militancy, and oil “golden age,” dipped even lower as First World growth
price increases. Slow growth in the First World meant slowed and demand for capital slackened. Indeed,
that primary exports, on which Third World coun- given high inflation, real interest rates—the differ-
tries with little or no industrialization had remained ence between the nominal interest rates and the rate
dependent, slowed perceptibly. Moreover, post-war in- of inflation—occasionally even turned negative. At this
ternational economic governance, which had proved time the vastly inflated OPEC revenues from oil sales
relatively benign for developing countries, unravelled were deposited in US banks and they became eager,
and the restructuring of the main Bretton Woods in- even desperate, to lend money (see also Chapter 14).
stitutions by the 1980s made them positively hostile to The 1970s witnessed a boom in private bank lending
development, while changes in the international mon- to sovereign Third World governments through open
etary system vastly increased the invidious power of variable-rate loans. They financed the substantial spurt
these institutions (see Chapter 9). in industrialization and seemed to promise practically

901890-03-ch03.indd 57 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

free capital and potentially high industrial growth for featuring low or even negative growth in already poor
Third World countries with the state capacity and po- countries.
litical will to foster it. If this promise had been realized, Neoliberalism and structural adjustment were
the shift in the centre of gravity in the world economy anti-statist rhetorically and to a certain degree practi-
that the BRICS and other emerging economies caused cally, but in reality they entailed comprehensive state
in the early twenty-first century would have happened intervention to re-engineer whole economies in favour
decades earlier. of private capital—foreign capital more than domestic
However, the US turn towards “monetarism” capital, financial capital more than productive capital.
ended this hopeful prospect. Monetarism prescribed Although a number of debt reschedulings followed
raising interest rates to end inflation. Whether it ended the outbreak of the debt crisis and small parts of the
inflation remained moot, but it certainly caused a sharp debt were forgiven, little was done to alleviate the debt
recession and delivered a harsh financial shock to Third burden that had expanded so vastly with the interest
World borrowers who had accepted huge loans when rate increases. For the next two decades, countries un-
interest rates were low and even negative and now faced der SAPs—a majority of Third World countries—were
sky-high principal and interest payments. In 1982, the forced to expand exports of mostly primary commod-
Third World “debt crisis” broke out as Mexico, Brazil, ities and low-value-added industrial products to pay
and Argentina defaulted on their debt. Although not back the debt. Consequently, the market for these com-
originally designed to do so, the IMF and the World modities was glutted, lowering prices and making it
Bank stepped in to manage the resulting financial cri- harder for these countries to earn the foreign exchange
ses in a way that helped First World bankers evade their needed to repay inflated debts. Meanwhile, First World
responsibility (creditors’ responsibility) for profligate consumers benefited as many tropical products, from
lending and passed the whole burden of adjustment to higher-value teas and coffees to cotton, fresh fruits and
the borrowers, mainly Third World governments. Act- vegetables, and even seafood, entered mass consump-
ing more like instruments of US and Western power tion in the 1980s for the first time. And contrary to all
than the multilateral institutions they were supposed notions of development, neoliberalism also engineered
to be, the IMF and the World Bank rescheduled debts a massive transfer of capital from the Third World to the
to avert repudiation and imposed structural adjust- First, as the now inflated repayments were not matched
ment programs (SAPs), which were stricter, more by new loans. The resulting crisis of development is of-
market-friendly versions of the “conditionalities” that ten blamed on poor government policies in the Third
the IMF was empowered to impose on countries in World. However, with state spending restricted and in-
balance-of-payments difficulties (see also Chapter 9). terventionism ruled out, no attempt to break out of the
These programs severely restricted consumption and production of low-value-added products—in effect, no
investment in favour of production of largely primary development—could even be contemplated.
goods for export to repay debts. Neoliberalism’s anti-state and pro-market dogma
SAPs marked the single most important change ended “development” as originally conceived, with the
in the theory and practice of development. The nation-state as its chief agent and industrialization its
neoliberalism they embodied contested the original central component. In the 1990s, the dominance of
goals and methods of development—to which, as we neoliberalism was reinforced by the discourse of “glo-
have seen, state intervention to control and direct mar- balization,” which argued that nation-states were now
ket outcomes and promote industrialization had been irrelevant. Then, as the twenty-first century opened
central—in favour of dogmatically market-friendly with 9/11 and the US’s “war on terrorism,” a new set
policies. While in the rich countries neoliberalism of discourses on “empire” and “imperialism” portrayed
resulted in unprecedented rates of unemployment, a number of Third World states as “rogue states,” and
poverty, inequality, and deindustrialization, ending “failed states,” to be dealt with, if necessary, by violence
the “golden age” of high growth and the Keynesian often dressed up as “humanitarian intervention” and
welfare state, its effects on the Third World were far protection of “democracy.” Amid all this, prospects for
worse, leading to two “lost decades” of development development, industrialization, and “catching up” to

901890-03-ch03.indd 58 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

First World levels of prosperity receded farther into the represented the interests of all the citizenry, only of its
distance for most of the Third World. propertied. A great many development failures could
In retrospect, the story of development, in its indeed be placed at their door. Critics of neoliberalism
original sense, seemed more or less to have ended in faced the uphill task of arguing that while that was
the 1970s: true, not only were governments capable of better in
the right circumstances, only they could promote de-
By the early 1970s the vision of “catching up” velopment against the obstacles posed by the political
(culminating in Rostow’s 1960 version, in a and economic power of the First World. Only in follow-
“high mass-consumption” society, which im- ing decades, when a new generation became acquainted
plicitly included equity and democracy) had with the costs exacted by the oversimplifications of
already given way to more modest ambitions: neoliberalism and free-market thinking, would thinking
“redistribution with growth”—i.e., some re- about alternatives rekindle.
duction in inequality but financed out of But the contradictions of neoliberalism could not
growth so that the better off in the developing be wished away. By the end of the 1980s, neoliberalism’s
countries might be less unwilling to agree to first decade, the high priests in its temples—the World
it—in a word, fewer illusions about democ- Bank and the IMF—were already qualifying neoliberal
racy. And by the end of the 1970s, redistri- doctrine by admitting at least a limited role for the
bution had given way to just trying to meet state, and by the 1990s they were no longer able to argue
the “basic needs” of the poor who, it seemed, that free markets and free trade were desirable. Now
would always be with us after all; the goal of neoliberalism was replaced by “globalization,” which
equity had disappeared. Then came structural argued that free trade and markets were inevitable and,
adjustment; to get growth, underdeveloped in the 2000s, by discourse that there was no alternative
societies were to adjust themselves to the Pro- to subjection to US “empire” (see Chapter 6).
crustean bed allocated to them by the market, Amid all this, development discourse petered out
and for this purpose even basic needs must be in a range of only apparently similar discourses—of
sacrificed. (Leys, 1996: 26) “post-development” or of NGOs—or in esoteric reflec-
tions on the condition of various parts of the Third
Neoliberalism was favoured also by Third World elites World. All of these discourses differ from development
disinclined to honour their obligations to their own discourse in one critical respect: they posit no project
working and peasant classes implied by developmen- and address no agent (see Chapter 4).
talism. Its policies involved cuts in state spending on However, in the first decade of the twenty-first cen-
welfare and subsidies, currency devaluation, deregula- tury, two developments were already in train to alter the
tion of the economy and privatization, and restriction landscape of development radically by the end of the
of the rights of labour. Indeed, governments, rather decade. A small number of countries, pre-eminently
than being agents of development, were obstacles to China but also India, Brazil, and others, grew spec-
it—profligate, corrupt, inefficient, and parasitic. Gov- tacularly. Post-Communist Russia stabilized under
ernment intervention interfered with the market’s Vladimir Putin after a decade of neoliberal “shock
way of “getting prices right” and balancing economic therapy” (in reality, all shock and no therapy) un-
activity. Neoliberals also argued against the emphasis der Boris Yeltsin. Double-digit growth rates in China
on industrialization, insisting that markets assured were, in particular, the result of the central role of the
that each country would specialize in the economic Communist party-state in fostering development, and
activity—and it could be agriculture—in which it had it was clearly possible precisely because that apparatus
a “comparative advantage.” If governments sought to retained its policy autonomy from the power of the
overturn the verdict of the market and to industrialize, rich countries (see Chapter 13). Elsewhere, also, growth
they would only cause declines in welfare. was the result of policies that were not neoliberal
Neoliberalism appeared convincing insofar as or were “insufficiently” neoliberal, which the more
many governments in the Third World had never powerful states such as India or Russia or Brazil, able

901890-03-ch03.indd 59 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

to stand up to US, World Bank, and IMF pressure, were to be exercised (Bagchi, 2004, 2005). It also confirmed
able to follow. The demonstration effect on the rest of dependency theory, arguing that autonomy from the
the Third World can hardly be understated. Second, and structures and practices of imperialism was crucial for
only slightly less important, many countries in Latin development (Chang, 2002, 2010).
America, which had suffered some of the worst of the
IMF/World Bank’s bitter neoliberal medicine, began
electing left-of-centre governments. These countries,
where not just the poor but vast swaths of the middle CONCLUSION: WHITHER
classes had been adversely affected by neoliberalism, DEVELOPMENT?
explicitly rejected it. By prioritizing the repayment of
loans from the IMF and the World Bank over loans to As the twenty-first century advances, the prospects
private creditors, they regained the policy autonomy for development theory look very different from what
they had lost since the early 1980s and began to pursue they were at its beginning. The Great Recession has
progressive economic policies, not only to strengthen discredited neoliberal faith in free markets and, inso-
their economies but also to reorient them to serve far as it still lingers in the shape of “austerity” in the
the interests of the poor and hitherto marginalized. First World, it only accelerates the shift in the world
Development theory in the twenty-first century will economy’s centre of gravity away from the stagnant
be centrally about assimilating these experiences and rich countries and towards the fast-growing emerging
drawing their lessons for the rest of the poor countries economies. While their growth is hardly without prob-
of the world. lems, the obstacles to this growth, like its motors, were
clearly more internal than external.
The gap in per capita incomes and material
Developmental States well-being between the rich and poor countries, even
As it seeks to do this, development theory will be greatly the most dynamic among them, remains large, but may
aided by a current within it that arose as a critique of not be endemic. Incomes are contingent on wage lev-
neoliberalism but was marginalized by the latter’s po- els, and they in turn depend on the self-organization of
litical power (Wade, 1996). While neoliberalism at- labour. Industrialization in developing countries “has
tempted to claim the development success of the Newly more often than not led to the emergence of strong,
Industrializing Countries (NICs) for neoliberalism, new labour movements . . . rather than an unambigu-
new scholarship reaching back to nineteenth-century ous ‘race to the bottom’ and the subsequent expansion
anti-free trade economists (such as Hamilton, List, of capital intensive, mass-production industries cre-
and Carey, mentioned above) emphasized the role of ated new and militant working classes with significant
government in these industrial success stories. The re- disruptive power” (Arrighi, 2003: 36–7).
sulting literature on developmental states—states that While “development” has proved disappoint-
consciously fostered more or less successful capitalist ing in relation to the high hopes that launched it,
development, often benefiting sectors broader than the the end of colonialism and the generalization of the
capitalist classes alone—was part of a veritable “Other nation-states system at least slowed income divergence
Canon” (Reinert, 2007a, 2007b) of economic or de- among countries. In his important survey of world
velopment theory going back several centuries. Mar- income inequality, Branko Milanovic concludes that
ginalized with the emergence of the free-market bias population-weighted international inequality in per
of economics in the nineteenth century, this “other capita incomes in the pre- and post-1950 periods exhib-
canon” converged with the Marxist emphasis on the ited very different trends:
social relations of production, the political character of
the states to which they give rise, the range of policy op- The first was characterised by (i) strong di-
tions available to such states, and the circumstances in vergence between countries, (ii) relative de-
which the more progressive options could be expected cline of populous countries, (iii) increasing

901890-03-ch03.indd 60 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

inequality among world citizens, and (iv) This is the record of the whole period from 1950 to
decreasing within-country inequality. In the 2000, including the “lost decades” under neoliberalism.
second period, after 1950, (i) the divergence With growth slowing in the rich countries and acceler-
among countries continued though at a slower ating in the emerging economies, and with the prospect
pace, (ii) populous and poor countries started that, learning the lessons of their development, even
to catch up with the rich world, (iii) inequal- more poor countries will join their ranks, the possibil-
ity among world citizens moved slightly up, ity of faster progress on this front cannot be discounted.
and (iv) the overlap [between the poor of rich The record of populous India is revealing. The most
countries and the rich of poor countries], significant break in India’s twentieth-century growth
and perhaps within-country inequalities, in- record came following independence in 1947: India’s
creased again. In other words, the features (i) economic growth rate in the first half of the twenti-
and (iii) continued, but at a slower pace, while eth century under colonialism has been estimated at
the features (ii) and (iv) reversed. In effect, it between 0.8 and 1 per cent per annum, whereas in the
is the reversal of feature (ii)—namely, the end second half, when India became independent, it was
of India’s and China’s falling behind the rich 4.2 per cent per annum (Nayyar, 2006: 1452–3).
world—that causes the increase in the overlap Decolonization was central to the story of India’s
component, as some part of poor countries’ growth in the twentieth century. Surplus extracted
populations now “mingle” with people from from colonies such as India, indeed pre-eminently In-
rich countries. (Milanovic, 2005: 144) dia, had contributed to the initial accumulation that

Paul Haslam

| Working on infrastructure for development: bridge construction in northeast Brazil.

901890-03-ch03.indd 61 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

led to the Industrial Revolution in Britain, and a cen- Colonialism, under which colonizers produced high-
tury later, when Britain’s industrial supremacy began value goods and colonies produced low-value goods,
to decline, this surplus had helped it to balance its pay- was its geopolitical face. With decolonization, which
ments against new rising manufacturing powers (see began in the late 1940s, newly independent countries at-
Arrighi, 2005; Patnaik, 2001, 2006). In India, the loss tempted to address these international and domestic in-
of surpluses, and the whole panoply of the practices of equalities under the rubric of the development project.
colonialism, had meant stagnation. A succession of development theories articulated
Even without their own colonies to exploit, the this endeavour. Early development theories emerged
industrial capitalist development of the former colo- from the United States as it sought to increase its in-
nial countries of the South was substantial prior to the fluence in the hitherto European-dominated global or-
twenty-first century, though admittedly the development der and to counter Communism, while later theories,
of South Korea and Taiwan, the most successful up to reflecting the experience of the developing world and
that time, was due in substantial part to the compulsions the difficulties of development there, criticized them.
of the Cold War that forced the US to grant these two However, for them all, industrialization was the main
states on the “front line” against Communism levels of goal and, given the deep crises—two world wars and
aid, policy freedom, and access to US markets denied all the Great Depression—that capitalism had just suf-
other ex-colonial countries. Moreover, at worst, national fered, the nation-state, rather than the market, was to
independence—and the national economic manage- be the main agent of achieving it. In the 1950s, Keynes-
ment that went with it—has been a barrier to worsening ianism focused on state corrections for market crises;
inequality. With the ascendancy of neoliberalism bro- by the late 1950s, modernization theory focused on
ken, the merits of the dependency, Marxist, and “devel- the alleged social defects of developing countries that
opmental state” theoretical currents in understanding prevented development; then, in the 1970s, dependency
and rectifying underdevelopment can now be tested. theory pointed to the maldistribution of economic
power in world capitalism. It was only in the 1980s that
neoliberalism radically rejected state intervention and
SUMMARY promoted free markets uncritically, while contempo-
raneous post-development theories rejected the idea
The post-war development project emerged amid the of development altogether. However, theorists of the
Cold War and decolonization but this project must be developmental state continued and expanded on the
understood in the longer historical perspective of the centrality of the state in promoting industrial devel-
rise of modern capitalism. Aspirations to development— opment. The emerging economics and geopolitics of
universal human progress—were rooted in and denied the twenty-first century corroborate them, and point
by capitalist industrialization. Production increased to the strengths of the dependency theorists of several
dramatically, but it rested on injustice and anarchy. decades earlier.

QUESTIONS FOR CRITICAL THOUGHT

1. How has the Great Recession of the twenty-first century changed the prospects for development?
2. Why is it important to think about development as something that began not after World War II but centuries
earlier?
3. What is neoliberalism? How has it affected development?
4. What are the enduring contributions of dependency theory? What were its chief problems?
5. Do you think developmental states are the key to development’s future? If we are moving towards a post-state
future, who or what will be the agent of development?

901890-03-ch03.indd 62 03/11/16 3:42 PM

 3 | Desai: Theories of Development 

SUGGESTED READINGS
Larrain, Jorge. 1989. Theories of Development: Capitalism, Polanyi, Karl. 2004 [1944]. The Great Transformation: The
Colonialism and Dependency. London: Polity Press. Political and Economic Origins of Our Time. New York:
Leys, Colin. 1996. The Rise and Fall of Development Theory. Beacon Press.
Nairobi: EAEP; Bloomington: Indiana University Reinert, Erik S. 2007. How Rich Countries Got Rich and Why
Press. Poor Countries Stay Poor. London: Constable.

BIBLIOGRAPHY
Ahmad, A. 1992. “Three worlds theory.” In A. Ahmad, In George, S. 1988. A Fate Worse Than Debt. New York: Grove
Theory: Classes, Nations, Literatures. London: Verso. Press.
Arrighi, G. 2003. “The social and political economy of global ——— and Fabrizio Sabelli. 1994. Faith and Credit. Boulder,
turbulence.” New Left Review 2, 20: 5–71. Colo.: Westview Press.
———. 2005. “Hegemony unravelling” (1 and 2). New Left Gilman, N. 2003. Mandarins of the Future: Modernization
Review 2, 32: 23–80 and 2, 33: 83–116. Theory in Cold War America. Baltimore: Johns Hopkins
Bagchi, A.K. 2004. The Developmental State in History and in University Press.
the Twentieth Century. New Delhi: Regency. Göçmen, D. 2007. The Adam Smith Problem: Reconciling
———. 2005. Perilous Passage: Mankind and the Global Human Nature and Society in The Theory of Moral
Ascendancy of Capital. Lanham, Md: Rowman & Sentiments and The Wealth of Nations. London: Tauris
Littlefield. Academic Studies.
Banaji, J. 1977. “Modes of production in a materialist Grinter, L. 1975. “How they lost: Doctrines, strategies and
conception of history.” Capital and Class 3: 1–44. outcomes of the Vietnam War.” Asian Survey 15: 12.
Brenner, R. 1978. “The origins of capitalist development: A Hayter, T., and C. Watson. 1985. Aid: Rhetoric and Reality.
critique of neo-Smithian Marxism.” New Left Review 1, Harmondsworth, UK: Penguin.
104 (Mar.–Apr.): 25–92. Hobsbawm, E. 1994. Age of Extremes: The Short Twentieth
Cammack, P. 1997. Capitalism and Democracy in the Third Century, –. London: Viking.
World: The Doctrine for Political Development. London: Huntington, S. 1969. Political Order in Changing Societies.
Leicester University Press. New Haven: Yale University Press.
Chang, H.-J. 2002. Kicking Away the Ladder: Development Hymer, S. 1972. “The multinational corporation and the law
Strategy in Historical Perspective. London: Anthem of uneven development.” In J. Bhagwati, ed., Economics
Press. and the World Order from the s to the s. New
———. 2010.  Things They Don’t Tell You About Capitalism. York: Collier-Macmillan.
London: Allen Lane. Jomo, K.S., and E. Reinert, eds. 2005. The Origins of
Desai, R. 2009. “Keynes redux: World money after the 2008 Development Economics. London: Zed Books.
crisis.” In W. Anthony and J. Guard, eds, Bailouts and Kitching, G. 1982. Development and Underdevelopment
Bankruptcies. Halifax: Fernwood Press. in Historical Perspective: Populism, Nationalism and
———. 2010. “The consumption demand problem in Marx Industrialization. London: Methuen.
and in the current crisis.” Research in Political Economy Laclau, E. 1977. “Feudalism and capitalism in Latin America.”
26: 101–43. In E. Laclau, Politics and Ideology in Marxist Theory.
———. 2013. Geopolitical Economy: After US Hegemony, London: NLB.
Globalization and Empire. The Future of World Leys, C. 1996. The Rise and Fall of Development Theory.
Capitalism Series. London: Pluto. Oxford: James Currey.
Evans, P. 1979. Dependent Development: The Alliance of Lipietz, A. 1982. “Marx or Rostow?” New Left Review 1, 132:
Multinational, State and Local Capital in Brazil. Princeton, 48–58.
NJ: Princeton University Press. Marx, K., and F. Engels. 1967 [1848]. The Communist
Freeman, A. 2004. “The inequality of nations.” In A. Freeman Manifesto. London: Penguin.
and B. Kagarlitzky, eds, The Politics of Empire. London: Mayer, A. 1981. The Persistence of the Old Regime: Europe to
Pluto. the Great War. New York: Pantheon Books.

901890-03-ch03.indd 63 03/11/16 3:42 PM

  PART I | Theories and Approaches in International Development

Nairn, T. 1981. “The modern Janus.” In T. Nairn, The Reinert, E.S. 2007a. How Rich Countries Got Rich and Why
Break-up of Britain. London: Verso. Poor Countries Stay Poor. London: Constable.
Nayyar, D. 2006. “Economic growth in independent India: ———. 2007b. “The other canon.” In E.S. Reinert, ed.,
Lumbering elephant or running tiger?” Economic and Globalization, Economic Development and Inequality:
Political Weekly (15 Apr.): 1452–3. An Alternative Perspective, paperback edn. Cheltenham,
O’Brien, C. 1971. “Modernization, order and the erosion of UK: Edward Elgar.
a democratic ideal.” Journal of Development Studies 7: Ros, J. 2005. “The pioneers of development economics and
141–60. modern growth theory.” In K.S. Jomo and E. Reinert,
Palma, G. 1981. “Dependency and development: A critical eds, Development Economics: How Schools of Economic
overview.” In D. Seers, ed., Dependency Theory: A Thought Have Addressed Development. London: Zed
Critical Reassessment. London: Frances Pinter. Books.
Parsons, T. 1937. The Structure of Social Action. New York: Rosenstein-Rodan, P.N. 1961. Notes on the Theory of the Big Push
McGraw-Hill. in H.S. Ellis and Henry C. Wallach, Economic Development
Patnaik, P. 2001. “Imperialism and the diffusion of development: for Latin America. New York: St Martin’s Press.
Text of the Ansari Memorial Lecture.” 15 Mar. www Smith, A. 1937 [1776]. Wealth of Nations. New York: Modern
.macroscan.org/anl/mar01/anl150301Imperialism_ Library.
Diffusion_Development_1.htm. Teschke, B. 2003. The Myth of . London: Verso.
Patnaik, U. 2006. “The free lunch: Transfers from the Trotsky, L. 1934. The History of the Russian Revolution.
tropical colonies and their role in capital formation London: Gollancz.
in Britain during the Industrial Revolution.” In Wade, R.H. 1996. “Japan, the World Bank, and the art of
K.S. Jomo, ed., Globalization under Hegemony: paradigm maintenance: The East Asian miracle in political
The Changing World Economy. New Delhi: Oxford perspective.” New Left Review 1, 217 (May–June): 3–36.
University Press. Wallerstein, I. 1974. The Modern World System. New York:
Payer, C. 1991. Lent and Lost: Foreign Credit and Third World Academic Press.
Development. London: Zed Books. Warren, B. 1973. “Imperialism and capitalist industrialization.”
Polanyi, K. 1944. The Great Transformation: The Political and New Left Review 1, 81: 3–44.
Economic Origins of Our Time. Boston: Beacon Press by ———. 1980. Imperialism: Pioneer of Capitalism. London:
arrangement with Rinehart and Co. New Left Books.

901890-03-ch03.indd 64 03/11/16 3:42 PM