Phillips, Nicola (2014).
Globalization and Development
MAIN ARGUMENTS:
1. WAYS OF THINKING ABOUT DEVELOPMENT
✓ The march of globalization has not led to substantial improvements in the material or
social conditions of the majority of world’s population hence the global development
agenda is thus largely considered to have failed in its aspirations, and certainly failed
to provide a framework for development policy that could deliver the goals of global
development;
✓ Underlying the problems of development and shortcomings of global development
policy is an enduring absence of consensus about what the cause of these trends are,
and, by extension, what is to be done about them. Even more fundamentally, there is
a little agreement on the very basic question of what development actually is.
2. DEVELOPMENT THEORIES AND IN PRACTICE
✓ Most often, the meaning of the word “development” is associated with a “utopia” connotation,
that is, higher living standards, full development of human capital, economic growth,
eradication of poverty, economic independence and self-reliant, increased production capacity,
rising per capita income and self-fulfillment (Phillips, 2014). This definition might be best for
it encompasses the characteristics of a good society. However, this has never been considered
as the common perception of how to treat development in an international perspective thus
academic debates persist throughout years (Dunn, 2009).
✓ Early stages of post-war development theory were in an immediate sense of ‘winning over’
developing societies and setting the world to a Western style of development which was
elaborated by MODERNIZATION THEORY- a United States’ perspective on development in
a Cold War context: view that development is a process of social change whereby less
developed societies adopt features common more to developed ones.
✓ On the contrary, UNDERDEVELOPMENT THEORY encompasses dependency and world
system theories which serve as great rival of modernization theory during the late 1960s and
1970s. This concept was originated in Latin America and developed by a group of economists
clustered in the United Nation Economic Commission for Latin America (ECLA) advancing that
global economic system is characterized by a rising gap in incomes between the powerful
‘centre’ and weak ‘periphery’.
o Instead of advocating the turn to export-led growth as advocated by the former
theories, inward-looking strategies (import-substituting industrialization) was adopted
by the Latin America. This underdevelopment theory further explains the relationship
of development and globalization and how developed countries took advantage of the
periphery in promoting their own economic progresses (Phillips, 2014).
✓ From the early 1980s onwards, the global development projects were dominated by NEO-
LIBERAL AGENDA. Not until the late 1980s and early 1990s, the “THEORY OF THE
DEVELOPMENTAL STATE” rose to challenge neoliberalism. This theory put emphasis on
the claim that state should play a major role in economic development.
o The rapid and extraordinary success of the Newly Industrializing Countries (NIEs) –
Taiwan, Korea, Singapore and Hong Kong posed different interpretations between
these two perspectives – neoliberalism and developmental state.
o Neoliberalism advocates that the success of these economies was because of the
reliance on markets thereby reducing state intervention.
o On the other hand, neo-statism or developmental state credits the role of the state for
the rapid industrialization of East Asian countries.
o Neoliberalism considered participation in global economic activity as the prerequisite
for the development and, associated the development failures as endogenous – that
is, originated in incorrect government policies, institutional underdevelopment and
excessive intervention of the state in the global economic activity.
o Apparently, this logic has been contradicted by the rise of group of these economies
described as they were by a different conception of how development could be and
should be achieved. Developmental states recognized the authority of the state to
shape, direct and promote the process of economic development (Phillips, 2014).
✓ In addition, varieties of human development theories associating development to gender
sensitivity, environmental consideration and protection, liberty and people-centred approach
also emerged. These resulted to the so-called sustainable development theory.
THE POLITICAL ECONOMY OF LATIN AMERICA, AFRICA AND ASIA
✓ The diagnosis of the economic impact of the Great Depression and the two World Wars led to
a conviction that a new policy direction was required.
✓ Government of Latin America geared towards the adoption of “inward-looking” development
strategy known as Import-substituting industrialization (ISI) which was also implemented in
countries in Africa and Asia.
o This strategy aims to stimulate and consolidate industrialization through a more
effective system of state intervention in the economy, politically integrating the new
and expanding working classes through a program of social reform, employment
generation and achieving some degree of autonomy.
o As Phillips (2014) noted it, this strategy requires the diversion of resources from land
to capital at the expense of poor peasantry. However, the premise of trade
liberalization and increased competition were seen to be unsuitable for the Latin
America due to poor policies and weak institutions. Striving to achieve less economic
dependency and greater autonomy from advanced industrialized countries, political
goal of ISI can be achieved through more effective participation in the international
system. But because developing countries were marginalized and had less
opportunities to participate in the global system, the latter way to achieve the pollical
goal of ISI failed.
o International institutions, during this time, were established not to serve as
development institutions instead to focus on the interests of the industrialized ones
(Phillips, 2014). Not until 1960s, World Bank and International Monetary Fund
accommodates the demands of developing countries for special resources hence
engaging them to substantial scale in lending. The failure of ISI led Latin America to
become dependent on inflows of foreign capital and technology which was labeled by
Peter Evans (1979) as cited by Niccola Phillips (2004) as dependent development.
Moreover, it is not possible to understand Latin America’s poor growth performance
without understanding its politics, region’s isolation, natural resources and culture and
values.
✓ Nevertheless, issues of dependency, poverty and inequality as well as indebtedness were much
greater in Africa than in Latin America. As a matter of fact, Africa was never such a sound
investment prospects for Western Banks as compared to the latter.
o This led Africa more dependent on official lending. Capital and resource flows and
mobilization reveals the weakness of African economies that undermine their growth
prospects. Africa’s growth performance since gaining from colonial rule in 1960s had
been very disappointing. Real income had continuously decline along with the
increasing population rate in sub-Saharan Africa (SSA).
o During this period, Africa’s GDP per capita and GDP growth was higher than Asia thus
expectations were that Africa would grow faster however they failed to adjust to
changing global economic conditions and went to experience the so-called
maldevelopment.
o Africa, the same with Latin America, adopted the structural adjustment and
liberalization; the most profound consequence of it was the weakening of the
manufacturing sector (which was exactly the opposite of East Asian Countries). This
economic liberalization has seriously constrained the scope for government policy
interventions and it has not improved growth but instead aggravated volatility.
(Sundaram, Schwank and Arnim, 2011). Because of this, moderate leftist governments
were elected (Dunn, 2009) and, this very disappointing economic performance has
been partly associated to ethnic diversity in the region which led to poor policies and
weak institutions.
✓ Moreover, East Asia, on this note, were moving toward a very opposite direction. Japan and
the four Newly Industrialized Economies (NIEs) were growing at rapid annual rates in adopting
ISI.
o The East Asian model and developmental state, primarily used to illustrate Japanese
case, were strongly nationalist in economic orientation. But, this “inward looking
development” was not the same of Latin America because it was conditioned by much
more clear recognition of the role of international environment in creating conditions
for the four East Asians industrialization. The Japanese and East Asian Countries had
the strength and autonomy to manage the impact inflows of foreign capital on
domestic economies and certainly less negatively affected. Also, the strategic
importance of the East Asian NIEs in the Cold War inclined the United States to support
their industrialization (Cumings 1984; Weiss and Hobson, 1995 as cited by Phillips,
2014).
Washington Consensus shift to World Bank’s Good Governance Agenda
✓ Washington Consensus (WC) was the only development policy that was officially approved.
Structural hegemony of global capital became the trend and international financial institutions
became the channels of the dissemination of the new neo-liberal development tenet.
✓ Structural Adjustment Programs (SAPs) ruled reflecting a set of ‘one size fits all’ policy
prescriptions. Lending strategies were subject to stringent forms of conditionality. Due to its
undeniable impacts such as continued stagnation in Africa, resurgence of hyperinflation in
Latin America, and poor performance of developing countries in Asia, SAPs were perceived to
have failed. Hence, the IFIs changed its development model to a new one - Good Governance-
asserting the centrality of institutions in conducting economic reform and development
processes (World Bank 1992 as cited by Phillips 2014). This has been the justification of IFIs
to intervene in highly political ways in developing countries but considering it still within a
technocratic definition.
✓ The explanation of failures of the development projects, during this period, was rooted in
internal conditions while others associated it with globalization. Thus, with the experiences of
East Asian countries, government intervention has been acknowledged in economies to
compensate market failures and distortions.
o The new advocated of IFIs seem to have been justified – poverty reduction alongside
good governance (Phillips, 2014). Two key frameworks emerged for this purpose: (a)
poverty reduction strategy papers and (b) Millennium Development Goals. Phillips
(2014) associated the latter as another global development associated emanated from
rich countries- a donor interpretation of key issues for a donor-audience perspective.
✓ Good governance has been now set as prerequisite of a market-friendly environment needed
to encourage investment and ensure sustainable growth.
o World Bank is the prime mover in coining good governance within the entire
development paradigm. Its existence was originated from strategic action by staffs
within the Bank (principal-agent theory) who actively challenged ideas concerning
development. This was a result of principal preference heterogeneity.
o Moreover, the failure of SAs in Latin America in 1980s and in Africa during 1960s
revealed the key flaws of the Bank’s neoliberal and anti-statist model.
o Therefore, with the East Asian miracle, the paradigm shift can be more of learning
from experience. Embracing the positive role of state in promoting development,
thereby attributing the development failures in developing countries to poor
governance. Africa’s economic failures were explained as due to kleptocratic elites
(political) rather than using the standards economic explanations (World Bank 1989
as cited by Weaver, 2010).
