5 September 2013 Comments Off on Successful Development Strategies

Successful Development Strategies

link to Express-Tribune article, published November 3, 2010
Link to my author page on Express-Tribune, listing all my articles.

Successful Development Strategies
Asad Zaman

History is the conquest song of the victors. Since ancient times, these songs have glorified the victors and grossly exaggerated their virtues, while denigrating and vilifying the losers. From them, the defeated learn an extremely biased and distorted picture of the world which prevents access to the truths necessary for liberation.

In graduate school in economics, we learnt about Rostow’s theory of the stages of economic development. This theory places all existing non-European civilization at ground zero, and argues that development will require them to imitate the path taken by England in the eighteenth century, and go through all the steps that England went through in the course of its rise to global world power. This idea is patently absurd. Current global conditions bear no resemblance to those faced earlier by European countries. Contrary to the idea of ground zero, India had advanced shipbuilding, glass, and textiles industries. De-industrialization took place as many of these industries were deliberately destroyed during the process of colonization. Economic theory was used as a weapon to argue that India’s comparative advantage lay in supplying raw materials for British industry.

Another reason the comparison is flawed is the political realities; European countries enjoyed a degree of sovereignty not available to current developing countries. Weak and corrupt government, and massive debt burdens, allow rich countries to dictate terms and set policy. How can one make effective development policy while paying billions in interest on nonproductive loans?  Rostow’s prescriptions for growth do not take current political circumstances into account, and are uninformed by history.

Despite numerous flaws, Rostow’s ideas undergird modern economic growth theories. This is a testimonial to the power of the victors to dominate the discourse. The spectacular accomplishments of the losers of WW2, Japan and Germany, receive no mention in economics courses. Even though their economies were wiped out by the war, both went on to become economic superpowers. Similarly, very little attention has been paid to the experience of the East Asian tiger economies, which accomplished something unprecedented in history: sustained rates of growth of 7% per annum, The famous industrial revolution that we struggle to replicate à la Rostow had growth rates of only 1.5%, tripling the previous historical average of 0.5%. This 7% growth rate is out of the ballpark and has been justly labeled the East Asian Miracle. Their experience is far more relevant to modern development strategies than the eighteenth century experiences of England.

Not a single Nobel Prize has been awarded to an East Asian economist. Instead, it is deeply ironic that Milton Friedman, the prophet of the free market, received the Nobel prize. Policies designed and supported by him were implemented to the last detail over a period of twenty years by a group of economists known as the “Chicago boys” under General Pinochet in Chile. Despite Friedman’s repeated assurances that these would bring about an economic miracle, Chile experienced high unemployment, sharp increase in income inequalities and poverty, expansion of multinationals at expense of domestic industry, and a highly erratic economic performance. The Economist, a magazine which ardently supports free market policies, had to confess that the “hair of the Chicago boys has gone grey, waiting for the free market to give results.” Pinochet eventually fired the Chicago boys.

A similar disaster occurred in Russia, as a result of the implementation of Friedman’s ideas. After the collapse of communism, there was widespread agreement on the need for a transition to free market policies. The debate was only between the gradualists and those in favor of a rapid transition. Supported by IMF, the “shock treatment” party won out, and implemented a sudden shift to free market policies. As a result, production in Russia fell by 50% in one year. In an economy previously able to feed its population, extreme poverty, hunger and starvation occurred on a large scale, accompanied by the creation of a new small group of billionaires.

Instead of looking to those responsible for numerous crises big and small, including the recent global financial crisis, wouldn’t we better advised to consult those few countries, including China, which have been success stories of development over the past few decades?

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