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What is development economics?

Development economics is a distinct extension of traditional neoclassical economics and political economy that highlights an expanded and more determining role of the government in economic development. Although similarly concerned with achieving a steady growth of aggregate output over time, whilst ensuring an efficient allocation of scarce resources, development economics’ unique approach to the study of economic development makes it a synergy that is worth more than the sum of its parts. Uniquely, development economics focuses on not only on the economics, but also the social and institutional mechanisms required to enable rapid and large-scale improvements in the standards of living of the poor in developing nations. It goes beyond the traditional economics primary concern with the efficient, least-cost allocation of scarce productive resources and the long-term rise in capacity of such resources to supply increasingly diverse economic goods and services. It also covers the political economy domain that mainly studies the social and institutional processes through which power relations affect economic decision making in resource allocation.

This distinct approach stems from development economics’ standpoint that the unique characteristics of developing countries, such as rural underemployment and late industrialisation, warrant a special branch of economics that caters to the study of developing countries, instead of merely applying a universal orthodox economics. Unlike the neoclassical view that is premised upon the presumed universal efficiency of the free market in bringing about economic growth in any country, whether developed or developing, development economics rejects precisely what Hirschman terms the “mono-economics claim”. Instead, it calls for a stronger role of the government, both at the international and national level, in the formulation of appropriate public policies to effect economic, institutional and social change required for development among late developers in the context of local conditions and globalisation. As such, development economics is a policy science.

To warrant the existence of development economics is to justify that it is not just a mere amalgamation of different sub-disciplines in economics, political science, or any other subjects. It is deserving as a separate sub-discipline in its own right as it has unique utilities not found in any other disciplines alone. As aforementioned, it is a special synthesis of various disciplines that is particularly cognizant of the diversity not only between developing and developing countries, a key feature that stimulated its rise. Increasingly, diversity within developing countries is recognised by scholars as important considerations in creating a development economics that systematically accounts for such diversity. This will further enhance development economics’ sophistication as a development policy tool as conscious attempts are made to reconcile its aspirations with reality.

Indeed, historical evidence indicate that countries like China and India that have shown impressive growth had state intervention and planning, as called for by Gerschenkron’s theory of late industrialisation. The role of the state in other East Asian countries with good growth performance is undeniable. Such is the case of Korea’s state-initiated heavy and chemical industry, Taiwan’s high-tech firms attached to the government’s research institute and the Singapore government’s wooing of multinational corporations MNCs into specific sectors. Notably, subtle differences in these government policies that brought about growth indicate development economics is taking the right step in its original call for a hetero-economics stance. An example would be the postulation of the Beijing Consensus as opposed to the Washington Consensus.

Going forward, the convergence in policy mindset in development economics in spite of the split between micro and macro- development economics, which has also led to different methodology in practice , bears well for a more systematic approach that recognises diversity. Such pragmatism calls for the practical application of policy solutions crafted in recognition of the context of the country under study. The notion that there is no one-size-fits-all policy approach to economic development has been extended from the international arena between the developed and developing countries to within developing countries.

With “a billion slum dwellers in the developing world’s cities, a billion people in fragile lagging areas within countries, a billion at the bottom of the global hierarchy of nations”, development remains a challenge.

The existence and utilities of development economics in making is justified as it has delivered positive results and is improving in its methodology with appropriate convergence. Given the open and mixed economies in the world, the question is no longer whether the government intervention is needed but how public policies should be made. An evolving development economics has a central role to play.

According to Hirschman, the attacks from the neoclassical economists and neo-Marxists on the hybrid nature of development economics and, signs of weaknesses of development economics relative to its previous achievements and other growth strategies, contributed to the decline of development economics. Unsurprisingly, the neoclassical economists launched a coordinated and channeled attack on the main flaw of development economics – the misallocation of resources – which would not have been as detrimental had the free market been allowed to operate without government intervention. The neo-Marxists accused the development economists of the lack of analytical rigour in promoting a fundamental change in socioeconomic structure in developing countries and relationships with the developed countries, such that a new form of dependency results.

As such, some advocates of industrialisation became the harshest critics of development economics. Moreover, the decreasing returns of policies that had promoted industrialisation in the 1960s, albeit at the cost of inflationary and balance-of-payments pressures, gave less credence to the utility of development economics. The development disasters that coincided with the rise of development economics had been used to defile efforts at industrialisation. Export-oriented policies gained attractiveness following the successes of countries like South Korea and Taiwan and as world trade increased rapidly.

In addition, development economics’ initial unified approach to analysis and policy recommendations for all underdeveloped countries, which led to its rise, ironically became a source of its downfall as the premise of the typical underdeveloped country became increasingly unreal. Such a premise did not realistically take into account the diversity of developing countries that intensified as development proceeded at different rates and took different forms in Latin America, Asia and Africa.

However, the fatal blow dealt to development economics was its inability to promptly tap on the opportunity to re-synthesise decisive arguments against the incrimination of intellectual responsibility for developmental disasters in the developing countries in the 1960s and bolster the structure of development economics. The development disasters and its association with appalling civil wars, authoritarian regimes, failure of benefits to follow economic growth in social, political and cultural arenas, had a decisively disabling impact on the discipline’s self-confidence, much more than the neoclassical and neo-Marxist theoretical attacks.

Subsequently, the decline of development economics followed. Some practitioners narrowed the scope of their sub-discipline, relegating economic development policy to a technical task that is to be undertaken under an implicit Pareto optimality assumption and hope for efficiency improvements without making the society worse off. Others sought refuge in Freudian displacement and attempted to show that the scene was dismal on both the political and economic front. Economic injustice such as increasingly inequitable income distribution in spite of growth sounded the alarms that the narrow definition of development ought to be expanded to include the basic needs of health, food and education. As other experts on these areas are required on the study of development, Hirschman proclaimed what was to him the irrevocable fall of development economics.


JC ECONOMICS ESSAYS Special thanks to M Z for these Economics materials.

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