Liberal Interpretations of Conditions in Developing Countries

Liberal Interpretations of
Conditions in Developing Countries
May 5, 2013
Liberal Understandings
Where world systems theory points to global
structural problems as afflicting developing
nations, colonialism points to the past, and
dependency theory argues for an understanding
of problems that are tied to outside sources of
capital, liberal theories do not blame the world
economy, capitalists, or outside sources of
capital for problems of underdevelopment.
Liberal Understandings
Rather, liberal understandings point to:
• Failures to pursue one of several proven
development strategies
• Failure to adopt necessary policies
• Natural disasters or other natural disruptive
• Resources curses
Liberal Understandings
These judgments are based on two sets of observations:
• Understandings of how developed countries in the West
undertook the development process in the 19th century.
However, important to understand differences, in that
development during that time took place in the absence
of many competitors, leading to a model of development
that started with the creation of a heavy industry sector
(steel, machinery, railroads)
• Observations of how nations in the 20th century
developed, observations of what those nations did when
successful compared to their choices when not
successful, and comparisons between successful nations
and those that have not successfully developed.
Strategies and Policies
• Market liberalization– allow markets to make decisions
about what to produce and at what price, and to allocate
labor and resources
• Connect to international market
• Develop internal markets
• Develop capital internally or encourage investment from
external sources
• Combat corruption, monopolies and oligopolies
• Transition state out of fields of economic production
and resource allocation
• Emphasis on transparency
• Start with less capital intensive industries, then move up
the value added ladder
Development Strategies
Four Tigers (or Four Dragons):
• Korea, Hong Kong, Taiwan, Singapore
• All in East Asia, all developed from 1960s-1980s, all
experienced very high rates of growth
• Developed under authoritarian regimes
• Important role in development played by governments,
in terms of either mixed economies (Taiwan) or
government support for large conglomerations (Hong
Kong, Singapore, South Korea)
• All though of as demonstrating a particular development
model, but there are also important differences among
Four Tigers
• South Korea: steel and automotive industries for export: most like
industrialization in 19th century in terms of emphasis on heavy
industry and presence of large amounts of capital; with the
difference being the export component
• Taiwan: light industrial goods (toys), then electronic consumer
▫ Used Import Substitution Industrialization (ISI): use of tariffs and other
trade barriers to develop industries to make products otherwise
▫ In tandem with export-led industrialization: concentrate important
sectors of the economy to creating goods solely for export
▫ More like new model; difference being heavy state involvement in
• Hong Kong: light industrial goods, banking and trade– service
industry makes it different
• Singapore: trade– not as much manufacturing
Four Tigers
All were assisted by provision of security needs from
the outside, but differently between the two sets of
• Hong Kong and Singapore were colonial outposts
that developed in large part because of an ongoing
heritage of free trade, as well as benefiting for
significant periods of time from military protection
and general support from colonial “parent”.
• South Korea and Taiwan an important part of US
Cold War security network and benefitted from US
security presence as well as from US foreign aid.
Much like Taiwan in development model, though with some
• Did not begin to take off until state instituted important liberalizing
market measures in the 1980s and 1990s
• Authoritarian government and strong state that continues to have
important economic decisionmaking powers and the continued
existence of some state owned enterprises– gradual process of
withdrawing from such ownership
• Large amounts of foreign capital inflows (initially from Taiwan)
• First concentrated on export led development, then concentration
on manufacturing for internal market
• Very high rate of growth
• Use of market tools also bringing accompanying problems: uneven
geographical development, income and wealth inequalities,
environmental problems, return of corruption
Developed in the context of:
▫ Former colony that had been left in an impoverished condition by Great
▫ Non-aligned during the Cold War, though often closer to the Soviet
Union than the US—humanitarian aid from West ,but little foreign
investment until after end of Cold War
▫ Conflicts with both PRC and Pakistan
• An established, though sometimes shaky and corrupt, democracy
• Movement from a mixed economy that had delivered little growth to
a more market-oriented economy, beginning with changes in the
mid and late 1980s.
• Import substitution industrialization, particularly automobiles,
computer equipment, other electronics
• Export sector concentrated on service industry, particularly
software development and call centers
Other States:
• Malaysia, Thailand: attempted to follow Four Tigers
in state-directed, export led development strategy,
but not as successful due to problems of corruption
and internal conflicts
• Vietnam: following the Chinese model of reform in
the context of continued authoritarian control, use
of cheap labor for export-led development, and
gradual withdrawal of state from economic activities
• Pakistan, Bangladesh: low level of internal
resources, internal instability that discourages
foreign investment, as well as violence (Pakistan re:
India, Afghanistan) and natural disasters)
Other States
• Brazil, Mexico: ISI strategies, market reforms
but continued existence of some aspects of
mixed economic model with important state
participation; reliance upon oil exports to build
up capital.
• More modest results than Four Tigers, China
and India, in part because of political instability
and violence associated with organized crime
and the drug trade.
Other states
Nigeria, Middle Eastern nations: importantly
afflicted by resource curse, in which dependence
upon exporting a natural resource allows the
state to fund itself, but does little to develop the
country internally, nor to encourage
transparency or market reforms.
General Differences of Strategy
• How involved should the state be: only regulate lightly,
regulate heavily, or be involved in economic planning?
• ISI to develop through cultivation of an internal market or
Export led development?
• Heavy industry or light industry/service sector first?
• Emphasize the accumulation of capital for industrializing
purposes and thus not invest very heavily in consumption
(wages, social services) and take advantage of cheap labor,
or spread capital between industrialization and
consumption to improve the standard of living of everyone.
• Internal vs. external sources of capital
• Develop first, then democratize, or democratize first, then
focus on development?

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