CHAPTER ONE:

DEVELOPMENT: AN INTRODUCTION

1.1. Perspective and Evolution of Development

Every nation strives after development and development is a primary issue that governments
and societies take for granted. In more recent times, the phenomenon of underdevelopment
has gained momentum in both national and international discourse. This is because of the fact
that as the global wealth continues to increase in this age of globalization, only very few
nations are gaining and progressing from such expansion, while many of them are found in the
Third World have continued to experience underdevelopment. Also, despite billions of dollars
is devoted annually to reduce the problem of underdevelopment, it instead is worsening from
year to year. It is important to note that about 7 billion people on planet earth and over 5
billion of them live in nations categorized as Third World. These people live in countries of
Africa, Asia, Latin America, the Caribbean and the Middle East. It covers the majority of the
human population as such, it cannot be ignored. Among the main factors that made the
development a global issue since the 1940s and the 1950s include the independence of former
colonized nations and their endeavor for realizing development, the post-WWII intervention
project of the former colonial power to protect their interest in their colonies; the post WWII
visible poverty in TWCs as threatening factor for global instability; the establishment of UN
and its objectives of fighting poverty and enhancing human dignity & reducing inequality
promoting human security; worldwide struggle for the improvement of living conditions in the
so-called developing countries, to mention only a few.
Development economics, and more generally development thinking, has changed significantly
since it was conceived at the outset of the Second World War. In fact, development has not
turned out the way it was historically envisioned, and there have been, and continue to be,
paradoxes confronting mainstream development thinking. One element of the debate has
remained contentious: could policies that led to successful development in the early
industrializing countries be repurposed as gold standards to follow in developing countries?
Conversely, are the paths of developing countries sufficiently different to warrant alternative
approaches? Development today is often associated with Gross Domestic Product (GDP), but
that idea is relatively modern. Using GDP as a measure of development was sensible, but it
had limitations as a measure of human welfare. It was an adequate measure if the goal of
economic development was simply to provide the means to improve living standards. And
until the 1970s, GDP growth was viewed as a good proxy for more general development in a
country. In the years following the Second World War, material wealth would not
unquestionably translate into better health care, education and housing for a country’s
residents. In short, GDP did not capture individual well-being.

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Development thinking has indeed progressively expanded beyond a focus on GDP growth. In
fact, broad strokes on development thinking can be deciphered, specifically on what was
perceived to be the fundamental factor in kick-starting development:
 Industrialization, growth and modernization (1940s-1960s)
 Structural transformation of world economic system that focused on independence in
developing economies (1960s-1970s)
 Macroeconomic stability of Neoliberal perspectives (1980s-onwards)
 Human-based development targets: equality, equity and freedom (2000s-present).
Three overarching discourses have influenced development perspective during these decades:
the term and objectives of development, the role of states and markets, and the importance of
the international (as opposed to the domestic) environment. A consensus is indeed emerging
that development has to do with real improvements in people’s quality of life and their level
of satisfaction.
1.2. The Concept of Development
Development is a complex and highly contested concept both theoretically and politically, and
it is inherently tricky and value-laden as people usually failed to define it objectively. The
meaning and measurable indicators of development is mostly value-laden and hence a
person’s values are important in terms of definition. This is to mean that development is
usually defined differently by scholars, government, development agencies, and individuals.
One of the confusions common to development literature is between verifying the meaning
and its measurable indicators. Regardless of such confusion, the most common definition of
development includes the followings:
 Development is mostly defined as good change; change that positively affect the living
condition of the people. But what is meant by good change differ from person to
person. If development means good change, questions arise about what is meant by
good change and what sort/type of change matters for a country to be developed.
Perhaps the right course is for each of us to reflect, articulate and share our own ideas
accepting them as provisional and fallible. Since development depends on values and
on alternative conceptions of the good life, there is no uniform or unique answer.
 A common theme within most definitions is that ‘development’ can be defined as ‘a
desirable change’ in various aspects of human life and living condition. Indeed, one of
the simplest definitions of ‘development’ is the notion of ‘good change’, although this
raises all sorts of questions about what is ‘good’ and what sort of ‘change’ matters,
about the role of values, and whether ‘bad change’ is also viewed as a form of
development.

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  Development’ encompasses continuous ‘change’ in a variety of aspects of human
society. The dimensions of development are extremely diverse, including economic,
social, political, legal and institutional structures, technology in various forms
(including the physical or natural sciences, engineering and communications), the
environment, religion, the arts and culture. Some readers may even feel that this broad
view is too restricted in its scope.
 Development is also defined as a long-term process of economic and societal structural
transformation. Here, development is seen as a process rather than the result of it
which results in a rise in real national income. This view sees development is a
transformation process of structural societal change or a process of historical change,
socio-economic structural transformation. The view of structural transformation
development is equated with the ‘long-term transformations of economies and
societies. The concept development is used to refer to the total transformation of a
system: thus when used to describe a nation, describes the transformation of the
various aspects of the life of the nation. The key characteristics of this perspective are
that it is focused on processes of structural societal change, it is historical and it has a
long-term outlook. This means that a major societal shift in one dimension, for
example from a rural or agriculture-based society to an urban or industrial-based
society (what is sometimes called the shift from ‘traditional’ to ‘modern’
characteristics), would also have radical implications in another dimension, such as
societal structural changes in the respective positions of classes and groups within the
relations of production for example (by which we mean the relationship between the
owners of capital and labour). This means that development involves changes to socio-
economic structures–including ownership, the organization of production, technology,
the institutional structure and laws. Development means a complete change in attitude
and characters. Real development involves a structural transformation of the economy,
society, polity and culture of the satellite that permits the self-generating and self-
perpetuating use of development of the people’s potential.
 Development is also defined as a short-to-medium-term outcome of desirable targets.
Here development is seen as occurring in terms of a set of short- to medium-term
performance indicators – goals or outcomes – which can be measured and compared
with targets (for example changes in poverty or income levels). It therefore has a much
more instrumental element which is likely to be favored by practitioners within the
development community notably in international development agencies. The key
feature of this definition is that it is focused on the outcomes of change. Development
here is defined in terms of attacking wide-spread poverty, reducing inequalities and
unemployment–all these being achieved within the context of a growing economy.
This led to the redefinition of development in terms of redistribution with growth and

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 meeting the basic needs of the masses of the population. Development as Distributive
Justice- view development as improving basic needs
From the above definition, it is possible to conclude that development is multidimensional
process involving major changes in the country’s economic, social and political structures,
change in popular attitudes and national institutions while reducing the level of poverty,
inequality and injustice. In this sense, development must represent the whole gamut of change
by which an entire social system turned into the satisfaction of individuals and groups needs
of society, moves away from a condition of life widely perceived as unsatisfactory toward a
situation of life regarded as materially and spiritually better Development is, therefore, not
only economic growth, but growth plus change–social, cultural and institutional as well as
economic. This definition encompasses economic and non-economic aspects of development.
This definition stresses on the expansion of development variables, and also improving the
quality of those variables. For example, capital is a development variable. Not only the
increased quantity of capital is needed but the improvement in its productivity is also required
for development. Similar instances can be given in respect of other development variables.
The central point of this definition is that quantitative and qualitative changes in development
variables are considered essential ingredients of economic development.
1.3. Objectives of Development
The real essence of development must be conceived of as multidimensional process involving
major changes in a country’s economic, social and political structures, change in popular
attitudes and national institutions while reducing the level of poverty, inequality and injustice.
In this sense, development must represent the whole gamut of change by which an entire
social system turned into the satisfaction of individuals and groups needs of society, moves
away from a condition of life widely perceived as unsatisfactory toward a situation of life
regarded as materially and spiritually better. Real development encompasses the fulfillment of
all its core values, which include the ability to meet basic life sustaining needs, enhancement
in individual and group self-esteem, and expansion of the range of human choice in economic,
social, and political dimensions of public life (freedom from servitude). From its core values,
we may conclude that development is both a physical reality (advancement of material
satisfaction for all) and change in individual and group state of mind (or spiritual
advancement) in which real improvement on factors that lead to such advancement: economic
production and productivity, socio-cultural advancement and change political institutional
process secured the means for obtaining a better life. So, the basic concern of development
should be redefined as a selective attack on the worst form of poverty, inequality and
unemployment, and thus developmental goals should be re-defined in terms of the progressive
reduction and eventual elimination of malnutrition, illiteracy, unemployment, inequality and
human misery. Whatever the specific components of this better life, development in all
societies must have at least the following three objectives:

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  Increasing the availability of and widening equitable distribution of basic life
sustaining goods such as food, shelter, health service, protection and security to every
members of the society;
 Raising level of living including, in addition to higher incomes, the provision of more
jobs, better education and health care, greater attention to cultural and human values,
all of which will serve not only to enhance the physical and material well-being but
also to generate greater individual and national esteem;
 Expanding the range of economic, socio-cultural and political choice available to
individuals, groups and nation by making them free from servitude and dependency
not only in relation to other people and states but also to the force of ignorance and
human misery.
Accordingly, the concept of development encompasses not only progress in economic sector
of a country but also the availability and accessibility of all forms of basic needs to every
members of a society. The social implication of development entails improvement in overall
living conditions (standards) of the masses in terms of improvement in their level of income,
health care, education, security and protection as well as in their self-esteem, respect and
dignity as human, and freedom to choose in all aspects of social life. The questions to ask
about a country’s development are therefore: What has been happening to poverty? What has
been happening to unemployment? What has been happening to inequality? If all of these
three have become less severe, then beyond doubt this has been a period of development for
the country concerned…If one or two of these central problems have been growing worse,
especially if all three have, it would be strange to call the result ‘development’, even if per
capita income has soared. So, development is an all-encompassing change in political,
economic and socio-cultural aspects of a country. The success of real development of a nation
primarily depends upon effective leadership and good governance. Above all, effective
leadership or good governance allow to direct and coordinate developmental activities of the
society toward the anticipated developmental objectives so that considering the interdependent
relationships between the economic and non-economic variables/factors has began to receive
greater attention in a contemporary developmental discourse. Accordingly, maintaining
enabling political (policy) and legal environment is taken as one prime objective of
development process of any country.
1.4. Development Strategies of Developing Countries
Development strategy refers to a set of more or less interrelated and consistent policies and
approaches adopted to attain developmental objectives. Development strategies have both
positive and negative consequences because it affects socioeconomic relationships, the priorities
of government budgets, and views of the future. The historical practice in the selection and
adoption of a development strategies by developing countries in the past 50 years and more

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depend upon three building blocks: (1) the prevailing development objectives which, in turn, are
derived from the prevailing view and definition of the development process, (2) the conceptual
state of the art regarding the existing body of development theories, hypotheses and models and
(3) the underlying data system available to diagnose the existing situation and measure
performance. Historically, developing countries have adopted different development strategies in
different times, and the choice of strategic options were significantly influenced by the prevailing
development thinking and theories of the period under consideration. For those reasons, it is
worth reflecting on the general development strategies of developing countries.

During the 1950th, economic growth became the main policy objective in the newly independent
less developed countries. It was widely believed that through economic growth and
modernization and industrialization became the target of development in developing countries.
Other economic and social objectives were thought to be complementary to Gross National
Product (GNP) growth. Clearly, the adoption of GNP growth as both the objective and yardstick
of development was directly related to the conceptual state of the art in the fifties. The major
theoretical contributions which guided the development community during that decade were
conceived within a one-sector (industrialization), aggregate framework and emphasized the role
of investment in modern activities or industrial sector. The prevailing development strategy in
the fifties follows directly and logically from the then theoretical concepts of development, i.e.,
industrialization, modernization and westernization thinking. Industrialization was conceived as
the engine of growth which would pull the rest of the economy along behind it. The industrial
sector was assigned the dynamic role in contrast to the agricultural which was, typically, looked
at as a passive sector to be squeezed and discriminated against. The industrial sector was equated
with high productivity of investment in contrast with agriculture and therefore the bulk of
investment was directed to industrial activities and social overhead projects. To a large extent the
necessary capital resources to fuel industrial growth had to be extracted from traditional
agriculture. Under this industrialization-first strategy the discrimination in favour of industry and
against agriculture was a dominant strategic option of developing countries.

Basic to the 1950s development strategies of developing countries were open-door policies, the
significance of foreign direct investment as big-push to inject the needed capital for industrial
sector development, the importance of foreign trade as engine for economic growth and then
development, to mention only a few. It was assumed that developing countries lack the needed
capital needed for industrial development so that the required capital could be injected from
developed countries in the form of foreign direct investment and foreign aid. As a result, it was
advised that development policies and strategies of developing countries designed to meet such
goals. A major means of fostering industrialization development strategy at the outset of the
development process was through import substitution or in-ward looking strategies particularly
of consumer goods and consumer durables. With very few exceptions the whole gamut of import
substitution policies, ranging from restrictive licensing systems, high protective tariffs and

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multiple exchange rates to various fiscal devices, sprang up and spread rapidly in developing
countries.

During the 1960th also, economic growth became the main policy objective in the newly
independent less developed countries. It was widely believed that through economic growth,
modernization and industrialization became a solution for underdevelopment in developing
countries. On the conceptual front, the decade of the sixties was dominated by an analytical
framework based on economic dualism. Whereas the development doctrine of the fifties
implicitly recognized the existence of the backward part of the economy complementing the
modern sector, it lacked the dualistic framework to explain the reciprocal roles of the two sectors
in the development process. The naive two-sector models of Lewis (1954) continued to assign to
subsistence agriculture an essentially passive role as a potential source of ‘unlimited labour’ and
agricultural surplus for the modern sector. It assumed that farmers could be released from
subsistence agriculture in large numbers without a consequent reduction in agricultural output
while simultaneously carrying their own bundles of food (i.e. capital) on their backs or at least
having access to it.

As the dual-economy models development strategy became more refined, the interdependence
between the functions that the modern industrial and backward agricultural sectors must perform
during the growth process was increasingly recognized. The backward sector had to release
resources for the industrial sector, which in turn had to be capable of absorbing them. However,
neither the release of resources nor the absorption of resources, by and of themselves were
sufficient for economic development to take place. Recognition of this active interdependence
was a large step forward from the naive industrialization-first prescription because the above
conceptual framework no longer identified either sector as leading or lagging. A gradual shift of
emphasis took place regarding the role of agriculture in development. Rather than considering
subsistence agriculture as a passive sector whose resources had to be squeezed in order to fuel
the growth of industry and to some extent modern agriculture, it started to become apparent in
the second half of the sixties that agriculture could best perform its role as a supplier of resources
by being an active and co-equal partner with modern industry. The balanced versus unbalanced
growth issue was much debated during the sixties. Both approaches emphasized the role of inter-
sectoral linkages in the development process.

By the seventies, the seriousness of a number of development problems and issues combined
with the failure of a GNP-oriented development strategy to cope successfully with major
development problems in a number of developing countries led to a thorough re-examination of
the process and strategies of economic and social development. The major development
problems that became acute and could no longer be ignored during this decade include: (i) the
increasing level and awareness of unemployment and underemployment in a large number of
developing countries, (ii) the tendency for income distribution within countries to have become
more unequal or, at least, to have remained as unequal as in the immediate post-WWII period,
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(iii) the maintenance of a very large, and perhaps rising, number of individuals in a state of
poverty, (iv) the continuing and accelerating rural--urban migration and consequent urban
congestion and finally (v) the worsening external position of much of the developing world
reflected by increasing balance-of-payments pressures and rapidly mounting foreign
indebtedness and debt servicing burdens. As a consequence of these closely interrelated
problems, a more equal income distribution, particularly in terms of a reduction in absolute
poverty, was given a much greater weight of development strategies and policies in most
developing countries. The reduction in absolute poverty was assumed to be achieved mainly
through increased productive employment (or reduced underemployment) in the traditional
sectors.

The first development strategy of 1970s was broadening process of moving from a single to
multiple development objectives was a concern with, and incorporation of, employment in
development plans and in the allocation of foreign aid to projects and technical assistance. One
possible attraction of using employment as a target was that it appeared, on the surface, to be
relatively easily measurable - in somewhat the same sense as the growth rate of GNP had
provided previously a simple scalar measure of development. The real and fundamental issue
was an improvement in the standards of living of all groups in society and, in particular, that of
the poorest and most destitute groups. Two partially overlapping variants of a distribution-
oriented strategy surfaced during this decade. These were ‘redistribution with growth’ and ‘basic
needs’. The first one was essentially incremental in nature, relying on the existing distribution of
assets and factors and requiring increasing investment transfers in projects (mostly public but
perhaps even private) benefiting the poor. The main step in this strategy was the shift in the
preference (welfare) function away from aggregate growth per se toward poverty reduction. This
strategy focused on the redistribution of at least the increments of capital formation in contrast
with the initial stock of assets. Since the bulk of the poor are located in the rural sector and the
informal urban sector, this strategy had to be directed toward increasing the productivity of the
small farmers and landless workers and making small-scale producers (mainly self-employed) in
the informal urban sector more efficient. The second alternative strategy inaugurated during the
seventies was the basic needs strategy. It entailed structural changes and some redistribution of
the initial ownership of assets particularly land reform in addition to a set of policy instruments,
such as public investment. Basic needs, as objectives include two elements: (i) certain minimal
requirements of a family for private consumption, such as adequate food, shelter and clothing
and (ii) essential services provided by and for the community at large, such as safe drinking
water, sanitation, and health and educational facilities. A third type of development strategy calls
for a massive redistribution of assets to the state and the elimination of most forms of private
property. It appears to favor a collectivistic model-based on self-reliance and the adoption of
indigenous technology and forms of organization.

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The periods of eighties and nineties witnessed a proliferation of statistical information on a
variety of dimensions of development and the welfare of households. Besides more elaborate and
disaggregated employment, manufacturing, agricultural and demographic surveys and censuses,
large-scale household income and expenditure surveys produced by statistical offices of most
developing countries - and often designed and funded by the World Bank (e.g. the Living
Standard Measurement Surveys) - became available to analysts and policymakers. Perhaps for
the first time, reasonably reliable and robust observations could be derived relating to the
magnitude of poverty, the characteristics of the poor and the inter-household income distribution.
The first one greatly enriched our understanding of the role of human capital as a prime mover of
development. The so-called endogenous growth school identifies low human capital endowment
as the primary obstacle to the achievement of the potential scale economies that might come
about through industrialization. In a societal production function, raw (unskilled) labour and
capital were magnified by a term representing human capital and knowledge, leading to
increasing returns. This new conception of human capital was helped convert technical progress
from an essentially exogenously determined factor to a partially endogenously determined factor.

Progress was postulated to stem from two sources: (i) deliberate innovations, fostered by the
allocation of resources (including human capital) to research and development (R&D) activities
and (ii) diffusion, through positive externalities and spillovers from one firm or industry to
know-how in other firms or industries. If investment in human capital and know-how by
individuals and firms is indeed subject to increasing returns and externalities, it means that the
latter do not receive the full benefits of their investment resulting, consequently, in under-
investment in human capital (the marginal social productivity of investment in human capital
being larger than that of the marginal private productivity). The market is likely to under-
produce human capital and this provides a rationale for the role of the government in education
and training. Cross-sectional and country-specific analyses of performance over time - was the
robust case made for the link between trade and growth. Outward-orientation was significantly
and strongly correlated with growth. Countries that liberalized and encouraged trade grew faster
than those that followed a more inward-looking strategy. The presumed mechanism linking
export orientation to growth is based on the transfer of state of the art technology normally
required to compete successfully in the world market for manufactures. In turn, the adoption of
frontier technology by firms adds to the human capital of those workers and engineers through a
process of ‘learning-by-doing’ and ‘learning-by-looking’ before spilling over to other firms in
the same industry and ultimately across industries. In this sense, export orientation is a means of
endogenising and accelerating technological progress and growth. Furthermore, to the extent that
outward orientation in developing countries normally entails a comparative advantage in labour-
intensive manufactures, there is much evidence, based on the East and Southeast Asian
experience, that the growth path that was followed was also equitable - resulting in substantial
poverty alleviation. A strategy that surfaced in the eighties and nineties can be broadly
catalogued under the heading of the ‘new institutional economics’ and collective action, ‘The
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main advance was to focus on strategic behavior by individuals and organized groups in the
context of incomplete markets.

The development strategy of the seventies centered on redistribution with growth and fulfillment
of basic needs was replaced by the structural adjustment strategies. The magnitude of the debt
crisis and the massive internal and external disequilibrium faced by most countries in Africa and
Latin America and some in Asia meant that adjustment became a necessary (although not
sufficient) condition to a resumption of development. The 1980s main development strategic
objectives of third world governments became macroeconomic stability, consisting of a set of
policies to reduce their balance-of-payments deficits (e.g. devaluation) and their budget deficits
(through retrenchment). Whereas stabilization per se was meant to eliminate or reduce the
imbalance between aggregate demand and aggregate supply, both externally and internally,
structural adjustment was required to reduce distortions in relative prices and other structural
rigidities that tend to keep supply below its potential. A typical adjustment package consisted of
measures such as devaluation, removal of artificial price distortions, trade liberalization and
institutional changes at the sector level. Complementary elements of the prevailing adjustment
strategy of the eighties included outward orientation (open-door-policies), the significance of
foreign direct investment, reliance on markets and a minimization of the role of the government.
The outward orientation was meant to encourage exports and industrialization in labour-intensive
consumer goods. In turn, to achieve competitiveness in exports, vintage technology would have
to be imported, which would trigger the endogenous growth processes, i.e. investment in the
human capital and knowledge of workers and engineers employing those technologies and
subsequent spillover effects. Under the influence of ideological changes in the Western World,
developing countries were strongly encouraged - if not forced - to rely on the operation of market
forces and in the process to minimize government activities in most spheres - not just productive
activities.

1.5. Administrative Development (Administration in Development)

The state plays a leading role in bringing about development through its administrative
system. In order to discharge this role it requires a distinct type of support by administration
which involves special understanding of problems in the developing countries. These must be
perceptible at different operative levels i.e., officials must make enough different decisions,
adopt enough different policies and engage in enough different activities to warrant the
different designations of development administration. The essence of administration in the
present conditions lies in its capacity to bring about change in the structure and behaviour of
different administrative institutions, to develop an acceptance for the change and to create a
system which can sustain change and improve the capacity of institutions to change. All this
calls for renewed efforts on the part of institutions engaged in the tasks of development.
Administration in development has to be efficient and effective. For that purpose, it has to aim
at enlargement of administrative capabilities and structural and behavioural change. It is this
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aspect of administration that is called administrative development or development of
administration. In simple terms, administrative development means development of
administrative system, of administrative health by introducing administrative rationalization
and institution buildings. The purpose implicit in this concept is not merely changing the
administrative procedures and channels but also bringing out fundamental change in
administrative system that leads to (a) political (policy) development, (b) economic growth,
and (c) social change. The administration should evolve so as to commensurate with societal
goals.
Administrative development further means cultural change in administration, which aims
primarily with change in the then colonial administration systems. The colonial administrative
culture was found as unsuitable to the changed socio-political ethos of the developing world.
Its legacy has adversely affected the administration system of the colonialized countries of
Africa, Asia, and Latin American. The colonial administration system was engaged mostly in
performing traditional administrative functions of law and order and revenue administration.
Administrative development was conceived as administrative measure that involves the
creation of ability to adjust to new stimuli or changes. Administrative development direct
towards self-sufficiency and lesser dependence upon foreign support. It should be
accompanied with delegation of power to ensure speedy performance and specialization of
administrative tasks. It also includes the improvement of tools and techniques for which
technological changes should be induced in Administration. The development of
administration aims at qualitative and quantitative transformations in administrative system
with an eye on the performance management affairs. The term also implies technological
changes in administration so as to enable it to adopt new modes or techniques of
administration. Thus administrative development focuses on adaptability, autonomy and
coherence in administration. Administrative development, therefore, involves both qualitative
and quantitative changes in bureaucratic politics, programs, procedures and methods of work,
organizational structures and staffing patterns, number and quality of development personnel
of different types and patterns of relations with clients of administration. The change in
Administration should be of kind that it can bring about fundamental changes in economic,
political and social spheres. There should also be a change in cultural environment of
Administration.
Administrative development is meant by the development of administrative capabilities. It
aims towards the adoption of structural and behavioural changes in administrative operations.
Administrative development is a pattern of increasing effectiveness in the utilization of
available means (resources of whatever form) for achieving prescribed goals. Administrative
development refers to the enlargement of administrative capabilities and structural and
behavioural change, which is an important aspect of development administration. It involves
modernization of administrative structures and procedures and positive attitudinal changes.
Administrative development also requires administrative changes and reforms. For
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administrative reforms it is an essential ingredient of development in any country, irrespective
of speed and direction of change. Administrative capacity becomes increasingly important in
the implementation of new policies, plans and ideas. The improvements in administrative
capacity may involve the removal of environmental obstacles, structural alternatives in
traditional and innovatory institutions bureaucratically organized or otherwise. This would
also necessitate changing individual and group attitudes and performance. The improvements
in administrative capacity may involve the removal of environmental obstacles, structural
alternatives in traditional and innovatory institutions bureaucratically organized or otherwise.
This would also necessitate changing individual and group attitudes and performance. The
behaviour pattern of bureaucrats is as crucial to administrative development as the institutions
and structures. The purpose of development of administration is to remove the administrative
bottleneck which seriously handicaps governments in planning and executing co-ordinated
programmes of economic and social reforms. In short, administrative development is
concerned with:
 The capacity of an administrative system to take decisions in order to meet the ever
increasing demands coming from the environment and with the objective of achieving
larger political and socioeconomic goals.
 Increase in size, in specialization and division of tasks and in the professionalization of
its personnel.
 A pattern of increasing effectiveness in the optimum utilization of available means and
further augmentation of the means, if necessary.
 Increase in administrative capability and capacity.
 Transformation of existing administrative mechanism into new machinery through
modernizing the bureaucracy by external inducement, transfer of technology and
training.
 Replacement of initiative, practices etc. with those based on realistic needs
 Reducing the dependence on foreign experts by producing adequate trained manpower.
 Promotion of development initiative.
 Administrative reorganization and rationalization.
 Making modernization culturally related.
 Removing or reducing bureaucratic immobility and widespread corruption.
 Reorientation of established agencies, and the delegation of administrative powers to
them.

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  Creation of administrators who can provide leadership in stimulating and supporting
programmes of social and economic improvement.
1.6. Development Administration (Administration of Development)
There is a popular notion about the idea of development administration, which is related with
the independence of a number of developing countries after the Second World. The concept
has wider implications that confined to the situations in developing nations. Though the idea
existed in pre-1950 period, its systematic use, however, started in the United States of
America in the early 1960's. Following this period, a number of administrative experiences,
particularly those relating to developing countries, were grouped together under the rubric of
development administration. The latter were concerned with the problems relating to
improvements in the administrative capabilities of developing nations that they may utilize in
a more rational manner the foreign assistance received by them for developmental purposes.
Thus, a series of factors helped in the evolution of the concept will imply the significance of
the nature of Public administration for development.
Weidner (1962) defined development administration as a goal-oriented and change-oriented
administration. Development administration is concerned with maximizing innovation for
development. To Martin Landau (1967) development Administration has come to mean the
engineering of social change. Within the emergence of literature, some scholars have
attempted to draw a distinction between development administration and traditional
administration. Accordingly, they developed distinctions between them as having different
objectives, values, organizational structures, guiding rules, areas of focus and final outcomes.
For most scholars, the term traditional administration is used as a synonym for general
administration and even as revenue and law and order administration. The distinctions
between development administration and traditional administration are generally made on the
following lines:
 The objectives of traditional administration are simple while those of development
administration are multiple and variegated.
 Traditional administration has a limited scope of operations, while development
administration as a much vaster scope of functioning.
 Development administration is more complex in its parts and procedures than traditional
administration. Development administration is larger in size than traditional
administration.
 Development ddministration is much more innovative and creative than traditional
administration. The administrative systems in development administration is basically
developmental in orientation, while in traditional administration is more of maintaining
rule, order and security.

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  Development administration is dynamic in functioning, while traditional administration
stresses upon stability. Development administration focuses on an all-encompassing
transformation in political, economic and socio-cultural aspects of public life.
 Bureaucratic, Rule-orientation is valued in traditional administration, while flexibility is
considered a virtue in Development administration.
 Participatory style of administration is a characteristic of Development Administration
while traditional administration is bureaucratic and authority-oriented.
 Development Administration is administration of planned change, while traditional
administration does not rely as much on planning.
 Colonial bureaucracy is engaged dominantly in the performance of general administrative
functions, while the administrative system of an independent country is primarily
developmental in character.

Among the important elements or features of development administration includes:

 Change-Orientation: Development administration is change-oriented system of
administration. Change involves the movement of a system or a structure from one point
to another. The reverse of 'change' could be status-quo or inertia. Thus, a development
administrative system would be dynamic and not 'static'. This change is a strategy for
increasing the coping ability of an Administrative system in relation to its external
environment as well as a ways to activate its internal structures.
 Progressivism: The element of 'progressiveness' of goals is an accepted feature of
development Administration. There appears to be a broad consensus on the nature of
progressiveness of change in most of the countries, particularly those which are
'developing' societies. In political systems, progressivism would imply greater
participation of the people in .governmental affairs. In the economic sphere, a progressive
approach would involve faster pace of economic development and a more equitable
distribution of income and wealth. It would involve an approach of economic justice
where opportunities to develop economically are equitably distributed to all sections of
society. In the socio-cultural sphere, a progressive approach would involve
universalization of promotion of health facilities for all sections of society, social justice
based on equity, secularism and adequate opportunities to all social groups to promote
their respective cultural distinctiveness. Development Administration, thus, is, an
administration designed to achieve progressive political, economic and socio-cultural
goals.
 Planning: Development Administration is seen as administration of planned change. It is
true that planning is a strategy that facilitates maximum possible utilization of human and
material resource. And in poor countries, where such resources are scarce, planning gains
a central importance. As a program of action to achieve certain specified goals in a given
period, planning helps in the maximum possible utilization of time and other resources

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 that make the whole process of development effective. Little wonder, almost all
developing countries have adopted socio-economic planning as a strategy of
development, and even the developed socialist countries continue to place great reliance
on the mechanism of planned development.
 Innovativeness: Development administration is not dogmatic or rigid and traditional in
its approach to problem solving. Instead, it stresses upon identification and adoption of
new structures, method procedures, policies, plans, programmes and projects which
would help achieve the developmental objectives with the greatest possible facilitation.
Experimentation, adoption and adaptation are the hallmarks development administration.
This creativity is not confined to the organizational level only. At the group and the
individual levels as well, creativity in administration is feasible and its overall
contribution to effectiveness of goal-oriented change can be immense.
 Flexible Organizational Procedures: bureaucratic administration is considered as a
synonym of rule-oriented administration. While it is true that no bureaucracy or
administration can function without an adequate set of rules, it is also true that a totally
“rule-oriented" administration can fall in the hub of treating rules as ends rather than as
means. Such a dogmatic approach can make an administrative system straight-jacketed
and inflexible and thus make it unfit for promoting development as a faster pace.
Development oriented administration requires an optimum flexibility of operations which
would allow an administrator the required autonomy to apply rules with discretion to
certain unique and significantly distinctive administrative situations.
 Client-oriented: A development administrative system is a client-oriented or a
beneficiary-oriented administration. It aims at providing maximum benefits of its services
and products to it customers and to every people for whom the organization is designed.
Development Administration is "people-centered" administration which accords primacy
to the needs of its beneficiaries and tries to tune its programmes, policies and actions to
these needs.
 Participation: The notion of participation gains added importance in the actual
functioning of a development administrative system. Development administration
involves the participation of the people or the beneficiaries in the formulation and
implementation of development programs. In identifying goals, prescribing objectives
formulating plans, designing action strategies, implementing projects and evaluating
performance, the role of the beneficiaries is of utmost importance.
 Coordination: Development Administration is characterized by a high degree of
coordination or integration. In a development administrative situation, coordination is
required to be affected at various levels, among different organizations and units, among
various positions and functionaries and among the resources available for the
achievements of goals. Lack of coordination is' bound to result into wastage of resources
and mitigation of effectiveness.

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  Coping Ability: A development administrative system is an "open" system. It receives
inputs regularly from the environment and attempts to respond through its outputs, viz.,
decisions and actions. No doubt there is a continuing interaction between a system and its
environment and this reciprocity of relationship is an important trait of development
administration. Development Administration has to respond to the demands and
challenges arising from its environment. Sometimes these challenges are moderate and
modest and thus do not strain the development administrative system. A development
administrative system, therefore, continuously tries to enhance its coping capacity.

Actually administration of development (development administration) and development of

administration (administrative development) are interrelated concepts. Both are dependent on
each other. Administration of development is as important as development of administration. To
achieve development goals it is essential that there is proper assessment of resources, proper plan
formulation, evaluation and. implementation, adequate involvement of people, emphasis on
technological change and self-reliance. At the same time we also need developed bureaucracy,
integrity in administration, initiative, innovativeness, delegation of powers, decentralized
decision-making etc. Administrative development cannot take place without administrative
change and reform. Both the concepts support each other and development of administration is
needed for administration of development. Development administration' and 'administrative
development' have a chicken and egg kind of relationship. Superiority of one concept over the
other cannot be established.

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 CHAPTER TWO

DEVELOPMENT PARADIGMS AND THEORIES

2.1. Paradigms and Theory (Meaning and Differences)

Science is a large field and has various terms and ideologies being incorporated, not only into
their facts and explanations but also into our daily life. Two of such terms are paradigm and
theory, which are interdependent but mostly confuse many students in the field of science. Like
in the case of analyzing and evaluating, one must have a paradigm before writing a theory. For
this reason, we would have to learn to differentiate them.

2.1.1. What is Theory?

Theory is a scientifically credible general principle or principles that explain(s) a phenomenon.

The American heritage defines it as “A set of statements or principles devised to explain a group
of facts or phenomena, especially one that has been repeatedly tested or is widely accepted and
can be used to make predictions about natural phenomena”. The Oxford Dictionary defines
theory as “a supposition or a system of ideas intended to explain something, especially one based
on general principles independent of the thing to be explained”.

A theory is typically based on a hypothesis. Theory can be said as a verified hypothesis or

statement that has many scientifically proven results for proof of its existence. Once a hypothesis
is proven and becomes generally accepted it becomes a theory. However, constant observations
and repeated experimentations are required to prove a theory. A theory explains the cause of a
phenomenon, i.e., why something happens. A theory explains a phenomenon or presents a
relationship that exists. It allows us to understand the nature of a certain phenomenon and the
causal relationships that exist in it. Theories provide us with a generalized picture usually
without any exceptions. Theories are testable and can be falsified. A theory always has evidence
and can be tested by anyone and acquire the same result which guarantees the truth it holds. In
all sciences, there are theories that create new knowledge and brings about development in a
particular science. In order to come up with a theory a certain procedure has to be followed. The
theorist engages in experiments, observations and uses a variety of scientific methods in order to
logically build up a theory. Theorists also use hypothesis that are tested again and again in order
to create a theory. The reliability of a theory depends on the evidence that is used to support it.
Some theories have to be revised or replaced with the passage of time since new evidence may
come to light. It involves more rational thinking and analyzing a phenomenon or a set paradigm.
It is ideological and also has a more specific approach. This is because the final statement of a
theory cannot be changed unless the theory is proved wrong. A theory can be proven wrong
since it is more specific. Theories are usually used for explaining the existing phenomenon. It is
also used for predicting natural phenomenon. Scientifically, it is said to be statements or

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explanations of a recurring phenomenon that has been proved repeatedly through scientific
calculations, research and hypothesis.

2.1.2. What is Paradigm?

Paradigm is defined by the Oxford dictionary as “worldview underlying the theories and
methodology of a particular scientific subject” and by the American Heritage dictionary as “a set
of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the
community that shares them, especially in an intellectual discipline.” The collection of beliefs
and concepts is what is known as a paradigm, which is a set of theories, assumptions, and ideas
that contribute to your worldview or create the framework from which you operate every day. It
is a set of theories and assumptions that comprise a worldview, or developed framework that
informs action. Paradigm is philosophical and has a general approach to it since it does not have
any proof of existence. Therefore, it can also be considered as a framework or structure for
developing a theory. For example, you've probably heard the phrase 'the Ethiopian way of life,'
which is a paradigm because it refers to a collection of beliefs and ideas about what it means to
be Ethiopian. For people who find this paradigm very important, it may serve as the foundation
of how they view or interact with the world around them. This emphasizes one of the most
important purposes of a paradigm, which is that it is comprised of beliefs and ideas that form a
framework to approach and engage with other things or people.

A paradigm is used to describe a set of concepts within a scientific discipline at any one time. It
is a science philosophy, a set of concepts or thought patterns including theories, research and
standards to contribute to a field of science or philosophy. Paradigms are usually behind theories
and allow the scientist to look at the situation and investigate the theory from every angle. The
paradigm provides the model or the pattern for the community that is investigating its theories.
It shows what is to be observed, how the observation should be conducted and begins the
primary theory. The paradigm helps show how experiments should be conducted and what
equipment is best to use in that situation. It also acts as guidance to the interpretation of results.

2.1.3. Main Differences between Paradigm and Theory

Paradigms and theories go hand in hand to explain concepts in science and assist academics in
their work to define different phenomenon. The theory explains the phenomenon based on
certain criteria while the paradigm provides the background or the frame that allows a theory to
be tested and measured. A paradigm can have a number of theories within its framework and the
paradigm acts as a reference point for the theory. These two concepts operate with each other
but have their differences. Paradigms and theories are the backbone of science and
the discussion points of great masterminds like Einstein and Newton. However, these high and
lofty disciplines of science can also be applied to everyday life and help with understanding of
the meaning of our environment.

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The main differences between paradigm and theory include the followings.

1. The paradigm means a reference point to develop a theory whereas the theory is
considered to be a verified hypothesis or statements. Paradigm cannot be given as a
statement but only be used as a framework of reference for developing a theory. A theory
is considered to be the creation of new knowledge as each theory gives a different
ideology.

2. The utility of the two is also different. While the paradigm is used to provide a general
explanation or showing perspective reality to the intellectually disciplined, a theory is
used to define and explain an existing phenomenon and also helps in predicting natural
phenomenon.

3. A paradigm cannot be changed because it is an embodiment of many theories even

though it is not accurate. But a theory, on the other hand, can be tested and falsified
bringing more knowledge and ability to create it.

4. A paradigm usually contains experimental, observational and research theories to support

its framework. Once the framework is done, it is required to be scientifically proven to be
a theory.

5. The theory is ideological because we are taking one particular topic or idea from the
paradigm while paradigm is philosophical as it involves a basic structure with no proven
thesis or statement.

6. Since paradigm is only a framework or structure, the approach is general. It does not
involve intense research as in the case of theory. But theory is more generic, or specific to
a topic.

7. A theory is a scientifically credible general principle or principles that explain(s) a

phenomenon. A paradigm is a model that consists of theories, research methods,
postulates, etc.

In general, a theory explains and brings about the causal relationships in a phenomenon. A
theory can be considered as a creation of new knowledge. A theory is always testable and can be
falsified. A paradigm, on the other hand, refers to a theoretical as well as a philosophical
framework. A paradigm acts as a frame of reference. It is often implicit and works as an
embodiment of theories.

2.2. Development Paradigms

Development paradigm is used here to mean the pattern of ideas, values, methods and behaviour
which fit together and are mutually reinforcing developmental assumptions and beliefs.

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Development paradigm affects socioeconomic relationships, the priorities of government
budgets, and views of the future. For those reasons, it is worth reflecting on the general approach
that a world or a given region of country takes to development. In the field of development, one
new paradigm tends to replace an old one. In development thinking, paradigms tend to coexist,
overlap, coalesce and separate. Arguably, the big shift of the past two decades has been from a
professional paradigm centered on things to one centered on people. In theory, the shift from the
paradigm of things to the paradigm of people entails much change. Top-down became bottom-
up. The uniform becomes diverse, the simple complex, the static dynamic, and the controllable
uncontrollable.

The modern economic historiography registers the rivalry and succession of three outstanding
development paradigms in the last hundred years. The first is the Keynesian paradigm of
public economics and full employment that governed the economic thought and policy practice
from the Great Depression of the 1930s until the stagflation of the 1970s. Keynesian paradigm of
development belied on state supremacy in economy as driver, generator, engineers of economic
development. This paradigm advocates strong state and direct state intervention in the economy.
In order to generate and sustain development, Keynes and his supporter backing strong
government macroeconomic policy measures such as increasing governments’ spending on basic
economic factors/infrastructure and expansion in public sector services, growing state-owned
enterprises, and controlling private sector activity. The paradigm also advocate macroeconomic
policy measures including price regulation in order to ensure that markets is doing well in the
supply for goods and services. Production, distribution, regulation functions in the markets for
factors of production (land, labour and capital) including interest rates should be directly
regulated by government. Similarly, overall international trade operation should be regulated by
strong government restrictions on imports and exports, high tariffs on trade. The paradigm
advocate state or government policy supremacy, a belief in administrative machineries as planner
and manager in overall national development processes. It places strong role of state/government
from planning, issuing orders, transferring technology, and supervising overall development
endeavour,

The second being the Friedmanian paradigm of modern monetary economics and inflation
which erupted with remarkable strength as Keynesian counterrevolution in the middle of the last
century becoming the dominant economic mainstream in the academic areas, finance ministers,
and the Bretton Woods Institutions from the late seventies until today. It is also pejoratively
known as neoliberalism or monetarism. Friedmanian paradigm of modern monetary economics
and inflation is a neoliberal paradigm as it advocates state withdrawal from the economy that
include macroeconomic policy measures such as governments’ spending cuts and reductions in
public sector services, privatization of state-owned enterprises, and removing legal obstacles to
private sector activity. The paradigm also advocate macroeconomic policy measures including
price liberalization in order to ensure that markets determine prices in the markets for goods and

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services and in the markets for factors of production (land, labour and capital) including interest
rates. It also advocates international trade liberalization that incorporates removing quantitative
restrictions on imports and exports, reducing tariffs on trade, and devaluing exchange rates
(which were often overvalued).

According to several scholars, the paradigm intentions were only establishing western hegemony
by diffusing inventions, ideas and values conceived in the west and undermining the ‘internal
forces’ in the developing countries. On both occasions this was a response to the weaknesses of
development strategies that focus exclusively on macroeconomic growth and assume that the
benefits of growth will trickle down to the poor. Often poverty persists because of the absence of
growth. At the same time growth by itself can be inhibited by wide-scale poverty, suggesting that
a more direct focus on poverty reduction may lead to a virtuous cycle of poverty reduction and
growth. Also, even in countries that are enjoying growth, poverty often remains entrenched or is
not reduced quickly enough. From development paradigm insights, the historical polarity
between defenders of state supremacy (Keynesian legacy) and fanatics of market freedom
(Friedmanian obsession) appears nowadays obsolete (outdate) in light of the contemporary
economic history (as learnt from Asian protracted economic boom) that reveals how important
are eclectic and pragmatic (proven) thoughts and cultural and institutional traditions at the time
of making political and economic policy choices. As much market as possible; as much state as
necessary, seems to be the smartest slogan to proclaim (i.e., the emergence of developmental
state paradigm).

The third is the Amartya Sen’s paradigm of modern welfare economics and human
development (people-centered development Paradigm) that was born with huge vitality at the
end of the past millennium in response to the inability of the preceding paradigms to confront the
greatest problems, threats, and challenges of market societies in the twenty-first century that are
certainly neither the Keynesian massive unemployment nor the Friedmanian hyperinflation. As is
known, those two economic pandemic diseases and their consequences have already been treated
by powerful antidotes as a result of both Keynes’ and Friedman’s splendid contributions to
macroeconomics and economic policy within their respective theoretical domains, of course;
thus, unemployment and inflation seem to be today under control worldwide with some notable
exceptions. Thus, both in the 1970s and again more recently, there was a growing sense that
development strategies should focus more on the needs of the poor. In many development
circles, discussions of market liberalization and state supremacy are now tempered with talk
about pro-poor markets (ie enabling the poor to access markets more easily and on terms that
will help them escape from poverty). Since the 1970s there has been more explicit recognition by
economists of the importance of human capital and the role of people in development.
Consequently, many contemporary development initiatives focus on improving health and
education (giving special attention to the poor and the needs of women) rather than just focusing
on the productive sectors of the economy. Additionally, an understanding of people's

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perspectives and participation by the poor in the development process are now widely
acknowledged requirements for the design and implementation of appropriate development
interventions. This people-centered approach to development has been partly driven by the so-
called livelihoods approach, a multi-disciplinary approach that focuses above all on the local
context (rather than national or sectoral strategies) and the opportunities and constraints that
individuals face in their attempts to escape from poverty.

In general, one major distinctive attribute of this epistemic succession is that all three paradigms
somehow co-exist, despite manifest philosophical, theoretical, and methodological and policy
differences among them. So far, the neoliberal paradigm is recognized as hegemonic economics
and development model, but its leadership and credibility are rapidly declining for the simple
reason of being unable to tackle the broad complexities of market societies in the postindustrial
and digital era, which are mostly related to the distribution of economic growth benefits, the
future of work, social justice, climate change and environmental matters among others. Rather,
Amartya Sen’s paradigm shows itself very capable of dethroning neoliberal hegemony as far as
its major theoretical and development policy milestones are concerned with most of the
problems, threats, and challenges mentioned above.

2.3. Economic-Based Theories

There are different theories and models developed by several economists across time. These
growth and development theories are as old as economics itself. During the 1950s and 1960s, a
general optimism about development was widespread among both academic scholars and
government officials. This optimism gradually dwindled and questioning stance about
development characterized the 1970s. That main viewpoint in the 1980s is pluralism, a
willingness to recognize many different approaches to development. Soon after World War II,
many Third World countries in Asia, Africa and Latin America gained independence from
western colonial rule. These newly independent Third World nations noted the pathways that had
been followed by the western industrialized countries to achieve socio-economic progress. For
any economy, there are four keys issues the first core issue is referred to as determination of
priorities. Man has countless needs and desires but not as many means and resources to fulfill the
same. So now one has to decide which desire should get priority and which not. The second core
issue is that which no referred to as allocation of resources namely which resources should be
allocated for which purpose and in which quantity. The third issue is that which is referred to as
distribution of income, this means once distribute the income in the society. The fourth issue is
referred to as” development in technology of economics,” it is basically the question how our
economic activities can be developed further so that the production quantity as well as quality of
production increased

Since the 1950s onward, Economists and development scholars has begun advising the people of
Third World countries to save more and to invest it as capital, a strategy based on the writing of

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such classical economists as Adam smith, John Stuart Mill, and Karl Marx. The key question,
therefore, was where and how to invest. Some experts and scholars recommended balanced
growth while others argued for unbalanced growth, which is, investing heavily in one area, and
letting other areas be pulled along. Investment was usually concentrated in the industrial sector,
often at the expense of rural and agricultural sectors of the economy. There are different
economic development theories and models developed by several economists across time. These
growth and development theories are as old as economics itself. Let as see some of the classical
and modern economic-based theories of development in some detail.

2.3.1. Adam Smith’s Theory of Economic Development

Adam Smith is often thought of as the father of modern economics by his monumental work
published in 1776, which is entitled as “An Inquiry into the Nature and Causes of the Wealth of
Nations” was primarily concerned with the problem of economic development. Though he did
not expound any systematic growth theory, yet a coherent theory has been constructed by later
day economists. Adam Smith’s theory of economic development is based on the following basic
theoretical assumptions.

 Natural law: Adam Smith believed in the doctrine of ‘natural law’ in economic affairs.
He regarded every person as the best judge of his self-interest who should be left to
pursue it to his own advantage. In pursuance of this, each individual was led by an
“invisible hand” which guided market mechanism. He strongly argued for the laissez-
faire policy of perfect competition found in any economy Since every individual, if left
free, will seek to maximize his own wealth, therefore all individual, if left free, will
maximize aggregate wealth. Smith was naturally opposed to government intervention in
industry and commerce and advocated the policy of laissez-faire in economic affairs. The
invisible hand, the automatic equilibrating mechanism of the perfectly competitive
market tended to maximize national wealth.

 Division of labor: Smith's most important contributions was to introduce into economics
the notion of increasing returns, based on the division of labor. It is division of labor that
results in the greatest improvement in the productive powers of labor. He attributed this
increase in productivity: (i) to the increase in the dexterity (skills) of every worker; (ii) to
the saving in time to produce goods; and (iii) to the invention of large number of labor-
saving machines. According to Smith, the division of labor results in increasing returns to
scale. Increasing returns are prevalent in most industrial activities, while diminishing
returns characterize land-based activities.

 Process of capital accumulation: Smith emphasized that capital accumulation must

precede the introduction of division of labor. Like the modern economists, Smith
regarded capital accumulation as a necessary condition for economic development. So the

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 problem of economic development was largely the ability of the people to save more and
invest more in a country. The rate of investment was determined by the rate of saving and
savings were invested in full. But almost all savings resulted from capital investments or
the renting of land. So, only capitalists and landlords were found to be capable of saving.
The labor classes were considered to be incapable of saving. According to Smith profits
are the major source of capital accumulation.

 Agents of growth: According to Smith, farmers, producers and businessmen are the
agents of economic progress. The functions of these three are interrelated. To Smith,
development of agriculture leads to increase in construction works, and commerce. When
agricultural surplus arises as a result of economic development, the demand for
commercial services and manufactured articles rises. This leads to commercial progress
and the establishment of manufacturing industries. On the other hand, their development
leads to increase in agricultural production when farmers use advanced production
techniques. Thus capital accumulation and economic development take place due to the
emergence of the farmer, the producer and the businessman.

 Process of growth: Taking institutional, political and natural factors for granted, Smith
starts from the assumption that a nation will experience a certain rate of economic
growth. This induces a widening of market which in turn increases division of labor and
thus increases productivity. This process is no doubt exposed to disturbances by external
factors, that are not economic but in itself it proceeds steadily, continuously. According
to Smith, this process of growth is cumulative. When there is prosperity as a result of
progress in agriculture, manufacturing industries and commerce, it leads to capital
accumulation, technical progress, increase in population, and expansion of markets,
division of labor and rise in profits continuously.

Regardless of its several and valuable contribution to modern economic thinking, the underlying
assumptions of Smith’s theory of economic development has a number of defects. These include:

 Rigid division of society: Smith’s theory is based on the socio-economic environment

prevailing in Great Britain and certain part of Europe. It assumes the existence of a rigid
division of society between capitalists (including landlords) and laborers. But the middle
class occupies an important place in modern society. Thus, this theory neglects the role of
the middle class which provides the necessary impetus to economic development.

 One-sided saving base: According to Smith, capitalists, landlords and moneylenders

save. This is, however, a one sided base of savings because it did not occur to him that
the major source of savings in an advanced society was the income-receivers and not the
capitalists and landlords.

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  Unrealistic assumption of perfect competition: Smith’s whole theory is based upon the
unrealistic assumption of perfect competition. This laissez-faire policy of perfect
competition is not to be found in any economy. Rather, a number of restrictions are
imposed on the private sector, and on internal and international trade in every country of
the world.

 Neglect of entrepreneur: Smith neglects the role of the entrepreneur in development.

This is a serious defect in his theory. The entrepreneur is the focal point of development.
It is the entrepreneur who organizes and brings about innovations thereby leading to
capital formation.

 Static model: Smith’s model is not a growth model in the modern sense since it does not
exhibit a sequence.

Applicability of Smith’s Theory to the Contemporary Underdeveloped Countries

The smith theory of economic development has limited validity for underdeveloped countries. In
such economies the size of the market is small. As a result, the capacity to save and inducement
(stimulus) to invest are low. Since the size of the market is small, productivity is low, and low
productivity implies low level of income. The low level of income results in small capacity to
save and inducement to invest and they keep the size of the market small. The level of real
income is low in underdeveloped countries but the propensity to consume is very high and every
increase in income is spent on food products. Little is saved and invested. The volume of
production remains at a low level. Consequently, the size of the market remains small. Moreover,
the political, social and institutional assumptions underlying Smith’s theory are not applicable to
the conditions prevailing in underdeveloped countries. Laissez-faire has lost its significance in
such economies. Competition has been gradually replaced by monopoly which has tended to
perpetuate and strengthen the vicious circles of poverty. Therefore, development is possible
through government intervention rather than through a policy of laissez-faire.

Despite this, Smith’s theory of economic development points toward certain factors that are
helpful in the process of developing underdeveloped countries. Farmers, traders and producers,
the three agents of growth mentioned by Smith, can help in developing the economy by raising
productivity in their respective spheres. Their interdependence also points toward the importance
of balanced growth for such economies. Further, his emphasis on importance of saving,
improved technology, division of labor, and expansion of market in the process of development
has become the corner stone of policy in developing countries.

Marxist Theory of Economic Development

Karl Marx, the famous author of ‘Das Capital’, is one of the few celebrities in classical economic
history who cast a spell on hundreds of millions of people by their doctrines. Marx predicted the

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inevitable doom of capitalism and it was on this prediction that communism has built its edifice.
His analysis had the greatest influence in shaping policies in the Soviet Union, China, and other
communist countries. Karl Marx contributed to the theory of economic development in three
respects: (i) in providing an economic interpretation of history; (ii) in specifying the motivating
forces of capitalist development; and (iii) in suggesting an alternative path of planned economic
development. In nutshell, Marx theory of economic development is based on the following
assumptions.

 Materialistic Interpretation of History: Marx materialistic interpretation of history

attempts to show that all historical events are the result of a continuous economic struggle
between different classes and groups in society. The main cause of this struggle is the
conflict between ‘the mode of production’ and ‘the relations of production.’ The mode of
production refers to a particular arrangement of production in a society that determines
the entire social, political and religious way of living. The relations of production relate
to the class structure of a society. According to Marx, every society’s class structure
consists of the propertied (property-owner) classes and the non-propertied classes. Since
the mode of production is subject to change, a stage comes in the evolution of a society
when the forces of production come into clash with the society’s class structure. Then
comes the period of ‘social revolution.’ This leads to the class struggle – the struggle
between the haves and the have-nots, which ultimately overthrows the whole social
system.

 Surplus Value: Marx uses his theory of surplus value as the economic basis of the ‘class
struggle’ under capitalism. Class struggle is simply the outcome of accumulation of
surplus value in the hands of a few capitalists. Capitalism, according to Marx, is divided
into two great protagonists: the workers who sell their labor-power and the capitalists
who own the means of production. Labor power is like any other commodity. The laborer
sells his labor for what it is worth in the labor market. The value of labor is determined
by the number of hours necessary for its production. According to Marx, the value of the
commodities necessary for the subsistence of the labor is never equal to the value of the
produce of that labor. If a laborer works for a ten-hour day, but it takes him six hours’
labor to produce goods to cover his subsistence, he will be paid wages equal to six hours’
labor. The difference worth 4 hours’ labor goes into the capitalist’s pocket in the form of
net profits, rent and interest. Marx calls this unpaid work “surplus value.” The extra labor
that a laborer puts in and for which he receives nothing, Marx calls surplus labor.

 Capital accumulation: According to Marx, it is surplus labor that leads to capital

accumulation. The capitalist’s main motive is to increase the surplus and profit. Capitalist
tries to maximize their profits in three ways: (i) by prolonging the working day in order to
increase the working hours of surplus labor; (ii) by diminishing the number of hours
required to produce the laborer’s sustenance. If they were reduced from six to four, the
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 surplus would again rise from four to six. It also tantamount to a reduction in the
subsistence wage; and (iii) by speeding up of labor, i.e., increasing the productivity of
labor. This requires a technological change that helps in raising the total output and
lowering the cost of production. Of the three methods, according to Marx, increase in the
productivity of labor is the likely choice of the capitalists, since the other two methods, of
extending the working hours and reduction of wages, have limitations of their own. So in
order to make improvements in the productivity of labor, the capitalists save the surplus
value, reinvest it in acquiring a large stock of capital and thus accumulate capital.

 Capitalist Crisis: In order to counteract this tendency of declining rate of profit, the
capitalists increase the degree of exploitation by reducing wages, lengthening the
working day, and by speed ups, etc. Consumption dwindles as machines displace men
and the industrial reserve army expands. Every capitalist intend to dump goods in the
market; and in the process, small firms disappear. A capitalist crisis has begun. The
ultimate cause of all economic crisis, Marx points out, is the poverty and limited
purchasing power of the masses. Economic crisis appears in the form of an over-
production of commodities, acute difficulties in finding markets, a fall in prices and a
sharp curtailment of production. During the crisis, unemployment increases sharply, the
wages of workers are further cut, credit facilities break down and small employers are
ruined. This does not continue forever. Revival soon starts. The low level of prices, cut in
wages, elimination of speculative ventures and destruction of capital tend to raise the
profit rate which eventually leads to new investments. As Marx wrote, A crisis always
forms the starting point of large new investments. Therefore, from the point of view of
society as a whole, a crisis is, more or less, a new material basis for the next turnover
cycle. But it leads to the same catastrophic conclusion: competition for labor; higher
wages; labor-saving, machinery; a reduction in surplus value; decline in profit rate; still
greater competition and collapse. This succession from crisis to depression, followed by
recovery and boom and then again crisis is evidence of the cycle character of the
development of capitalist production. In each period of crisis, stronger capitalists
expropriate the weaker capitalists and along with it grow the indignation of the working
class, “a class always increasing in numbers and disciplined, united, organized by the
very mechanism of the process of capitalist production itself. In elaborating the general
law of capitalist accumulation, Marx provides the economic explanation of the necessity
and inevitability of the revolutionary transformation from capitalist to socialist society.

A Critical Appraisal of Marxian Theory

 Unrealistic Surplus Value: The whole Marxian analysis is built on the theory of surplus
value. However, in the real world, we are concerned not with values but with real
tangible prices. In reality, workers are usually paid beyond the value of their surplus
(almost equivalent to their working hour) if they exert their effort for longer hours. There
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 is no increasing misery of labor in advanced capitalist societies as asserted by Marx. On
the contrary, real wages of workers have continued to rise. The workers have tended to
become more prosperous with capitalist development. And the middle class instead of
disappearing has emerged as a dominant class. Thus Marx has created an abstract and
unreal value world which has made it difficult and cumbersome to understand the
working of capitalism.

 Marx-A False Prophet: Marx has proved to be a false prophet. No doubt socialist
societies have come into existence but their evolution has not been on the lines laid down
by Marx. The countries which have toed the Marxian line of thinking have been curiously
those in which capitalist development lagged behind. All the communist states had been
poor and are even now so, as compared to the capitalist countries.

 Technological Progress helpful in Increasing Employment: Marx pointed out that

with increasing technological progress, the industrial reserve army expands. But this is an
exaggerated view, for the long run effect of technological progress is to create more
employment opportunities by raising aggregate demand and income.

 Falling Tendency of Profits not Correct: According to-Joan Robinson, Marx’s

explanation of the falling tendency of profits explains nothing at all. Marx contends that
as development proceeds, there is an increase in the organic composition of capital which
brings about a decline in the profit rate. But Marx failed to visualize that technological
innovations can be capital-saving too, and that with a fall in capital-output ratios and
increases in productivity and total output, profits can rise along with wages.

 Marx could not Understand Flexibility in Capitalism: Marx also could not foresee the
emergence of political democracy as the protector and the preserver of capitalism.
Democracy as a political system has proved its resilience and adaptability to the changing
times. The introduction of social security measures, anti-trust laws and the mixed
economies have given a lie to the Marxian prediction that capitalism contains within
itself the seeds of its own destruction.

 Wrong Cyclical Theory: Marx emphasized that capital accumulation led to a reduction
in the demand for consumption goods and fall in profits. But he failed to realize that with
economic development the share of wages in aggregate income need not fall, nor the
demand for consumer goods.

The Marxian Theory and Underdeveloped Countries

The Marxian theory is not applicable directly to underdeveloped countries. Marx did not think of
the problems of such countries. Marx was mainly concerned with problems with the
development of capitalism in the Western World. But some of the variables of his analysis do

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exist in such economies. In underdeveloped countries till recently under the colonial rule, labor
was being exploited for the benefit of the ‘home country’. There was the concentration of capital
in the hands of a few capitalists. Even now in almost all the underdeveloped countries that are
also politically free, wages are near subsistence levels; the ‘increasing misery’ of the masses is
visible; a ‘reserve army’ of the chronic and disguised unemployed exists; the problem of under-
consumption is universal and the society is sharply divided between the ‘two classes’, the middle
class being virtually non-existent.

The recent political turmoil in some of the Latin American, African, the Middle and the Far
Eastern countries have shown that the existence of Marxian ‘conditions’ in backward countries
act like nurseries where the communist seed grows soon. It is Marx’s perception of planned
development expressed in his minor writing which presumably has had a greater impact on the
actual economic development of countries such as the former Soviet Union and mainland China.
Marx’s notion of planned development also seems to appeal to those backward countries which
are in a great hurry to industrialize at the risk of excessive national belt-tightening. As a matter of
fact, it is Marx’s Departmental Schema that is applicable to underdeveloped counties. Such a
country is primarily a dualistic economy consisting of a capitalist sector and a subsistence
agriculture and small scale sector which may be said to represent Marx’s two Departments. It is
the capitalist sector which yields large economic surplus, while the subsistence sector yields a
small surplus. Rapid economic development is possible by reorganizing and expanding the
capitalist sector (Department 1) and transforming the subsistence sector (Department 2) into the
former so as to increase the economic surplus. This necessitates planning for industrialization
and increase in the supply of agricultural commodities to meet the expanding demand of the
capitalist sector. A number of underdeveloped countries like Ethiopia, India, Egypt, Burma and
Ghana have followed the Marxian Departmental Schema in their development plans. These plans
have emphasized the growth of Department 1 in relation to Department 2. The basic strategy has
been to increase investments in capital goods industries and services, and to increase the supply
of consumer goods by increasing investment and production in agriculture and small scale sector.
The primary aim has been to create larger employment opportunities, to increase purchasing
power and fresh demand, to build a strong capital base and increase productive and technical
capacities within the economy.

2.4. Stage of Economic Growth

Using an historical approach, Professor Walt Whitman Rostow in 1960 explained the process of
growth of developed countries. Though it is not the only historical theory on economic
development we have, it is today seen as a major work in that field in the 20th century. Like
Adam Smith, Rostow was an advocate of free market, and in his book, “The stages of economic
growth” posited that all countries should pass through a series of stages of development as their
economies grow. He stated that the advanced countries at a point in time passed through these
series of stages before they became what they are. According to Rostow, there are five stages of
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economic growth that countries must pass through and the process is linear in nature as one stage
leads to the other without a return to the previous that is the stages are not cyclical. The five
stages which he believed the advanced countries passed through before they got to the stage of
development. He argued that these stages follow a logical sequence; each stage could only be
reached through the completion of the previous stage. Some other stage theory economists are
Fredrick List and Hilder brand. According to Rostow, transition from underdevelopment to
development starts from the traditional society to precondition for take-off, then take off stage
and then drive to maturity and eventually to the age of high mass consumption which is the final
stage. His postulated five stages of economic growth are explained below.

Stage One: Traditional Society

The traditional society stage is characterized by the following: changes are actually very slow;
the economy is agrarian as over 75% per cent of the working population is involved in
agriculture; the method of production is crude and as such there is low per capita output and
barter system of exchange; the people have a conservative disposition towards the outside world
and hence their social habits influence their development; the society has a social structure that is
hierarchical in nature, mostly based on family and clan connections and finally; it is a population
that does not understand or exploit science and technology.

Stage Two: Pre-Conditions for Take-off

Pre-condition for take-off stage is a period of transition geared towards creating an enabling
environment for a self-sustained growth. The traditional society’s rigidity is broken with the
development in education; an improvement of science and its application to communication,
agriculture and transportation; the emergence of entrepreneurs and a simple banking system, and
hence rising savings at this stage. This broken-down rigidity which is usually brought about by
external forces also allows for mobility of labour to take place in the society. People become
aware that economic progress is possible and as such entrepreneurs are ready to take risks in
pursuit of profits to modernization. According to Rostow, this stage has usually required radical
changes in three non-industrial sectors and they are:

 The transportation system is overhauled to enlarge the market and make productive
exploration of raw materials and allow effective and efficient ruling of state

 Agricultural sector is revolutionalized to increase output in order to take care of the

growing urban population.

 An expansion of imports, including capital imports are financed by efficient production

and marketing of natural resources for exports.

By and large, a prerequisite for the precondition for take-off is industrial revolution.

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Stage Three: Take-Off Stage

This stage is characterized by rapid, self-sustained growth where the traditional institutions
habits do not have significant influence on individuals and the society is driven more by
economic processes. At this stage, economic growth becomes a nation’s second nature and
shared goal. According to him, there are three main requirements for a country to successfully
take-off and they are:

1. A rise in the rate of productive investment from 5% or less to over 10% of national
income or net national product.

2. The development of one or more leading sectors with a high rate of growth

3. The existence or quick emergence of a political, social and institutional framework which
exploits the impulses to expansion in the modern sector and the potential external effects
of the take-off gives rise to growth as an ongoing character.

According to Rostow, a country in the take-off stage needs:

a. A large and sufficient amount of loanable funds for expansion of industrial sector usually
gotten from fiscal measures e.g. tax and also reinvestments of profits earned from foreign
trade

b. A group of innovative entrepreneurs in the society.

Nations at this stage depend on- existence of one or more key sectors, existence of an increased
and sustained effective demand for the product of the key sectors, introduction of new productive
technologies and techniques in these sectors, the ability of the society to increasingly generate
enough capital to complete the take-off stage, and the existence of strong linkage effect of key
sector(s) with other sectors which will constitute a strong inducement to their expansion.

Stage Four: Drive to Maturity Stage

According to Rostow, it takes approximately sixty years to get to this stage from the take–off
stage. At this stage, 10-20% of national income is steadily invest, output outstrip population, the
makeup of economy changes as technology improves rapidly, and new industries accelerate
taking the place of old ones. The society experiences a structural transformation because (i) it is
less agrarian as only about 20% of the working population is in the agricultural sector as opposed
to over 75% in the traditional sectors. At this stage, the work force is skilled and prefer to live in
the cities as against staying in the villages; (ii) there is great professionalism introduced in the
industries as rugged and hardworking masters give way to polished and polite efficient managers
and (iii) bored of what has been achieved, the people are eager for new things and this leads to
further change. In the drive to maturity stage there is great reduction in poverty because the

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economy has the capacity to produce anything it wants to and the welfare of the people is
expected to improve greatly.

Stage Five: Age of High Mass Consumption

This stage has been characterized by (i) high migration to cities (urbanization), (ii) extensive use
of automobiles, durable consumer goods and electronic gadgets (iii) attention shifts from supply
to demand, and from problems of production to problems of consumption (iv) there is national
policy that guarantees welfare packages for people (v) countries at this stage can also pursue
external power and influence. Here, people are comfortable because they have enough to
consume, employment is full and there is increasing sense of security. A country experiencing
these features usually has a growth in population.

From historical facts, the first country to reach this stage is the United States and it was attained
in the 1920’s, Great Britain was next and achieved theirs in the 1930’s

Contribution the Stages of Economic Growth Model

In nutshell, Rostow using an historical approach outlined five linear stages which countries must
pass through before achieving development. The model asserts that all countries exist
somewhere on this linear spectrum, and climb upward through each stage in the development
process. Despite its popularity, the model has been criticized by scholars and one of the
criticisms is that it was developed based on the conditions prevailing in the developed societies
and as such has no relevance to the less developed countries of Africa and Asia. Be that as it
may, the theory’s take–off stage can serve as a guide to LDCs in their bid to achieve
industrialization.

From the take-off stage, a developing country can get useful ideas for industrialization (most
especially from the first two conditions Rostow stated as necessary for take-off). As for the first
condition, which is capital formation of over 10% of national income, the developing countries
can achieve this and so also can the second condition which is the development of one or more
leading sectors in the economy be achieved if it is adjusted to suit the conditions available in the
particular country because each country/nation has sector(s) where its strength lies. For example,
a country rich in large arable land like Ethiopia can develop its agricultural sector for exporting
of raw material and exporting manufactured goods using raw materials from the agricultural
sector. However, the take-off has some limitations as regards the developing countries. For
example, the capital-output ratio is not constant in developing countries because they are majorly
into subsistence farming and given their unchanged technology and increasing population, their
natural resources give rise to a condition of diminishing return to scale and not constant return to
scale of the advanced countries. Take-off stage gives an assumption of spontaneous economic
development. This is not so because a take-off can never be instantaneous.

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Criticisms of the Stages of Economic Growth Model

o Rostow’s model is historical because the end result is known at the outset and is derived
from the historical geography of a developed, bureaucratic society.

o His model is based on American and European history and as such it is based on the
prevailing conditions of these developed countries. These conditions are however
peculiar to them and therefore the theory cannot be said to be relevant to the less
developed countries of Africa and Asia.

o The stages cannot be properly identified as the conditions of the take-off and the pre-
take-off stage are very similar and overlap.

o In Rostow’s model, he asserted that growth becomes automatic by the time it reaches the
maturity stage but according to Kuznets, no growth is automatic because there is always a
need for push.

o According to Rostow, countries must start from the traditional society. This is not always
true because some countries like the United States and Canada were born free of
traditional societies and they derived the precondition from Britain.

o As regards the stage of high mass consumption, some countries enter into this stage
before reaching maturity e.g. Australia.

UNIT THREE

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 EXTERNAL DEVELOPMENT AGENTS & DISCOURSES BEHIND THE TWCs
DEVELOPMENT PROSPECTS

3.1. Introduction
When you study about theories of development in unit 2, you have gone through diverse
theoretical explanations on the sources of development and underdevelopment in TWCs. We
have considered the theoretical explanation both on the internal and external factors either to be
appreciated for and/or to be blamed in the development-and/or-underdevelopment in the Third
world. This unit takes a closer look at some of those external factors and the political discourses
that exist on their relevance to the development/underdevelopment in the Third world states. The
unit will raise questions about the operation of international trade, as well as the activities of
Multinational Corporations (MNCs) and the International Monetary Machines such as the IMF
and the World Bank, as they relate to crisis or/and engine of development in the Third World.

3.2. External Agents of Development/Underdevelopment in TWCs

Unlike the command earning model of dependency school, the Neoliberal model assigns
government a very limited economic role. Contemporarily, the neo liberal policies seemed to a
large extent to have won over the debate against the advocates of extensive state intervention.
Neoliberal economists and its advocate of International Financial Institutions (like the WB &
IMF) insist that free market forces should determine production decision and set prices without
government interference if TWCs need to be developed. In addition, they insist that reliance on
market forces and the adoption of market driven export oriented development strategy was said
to have led to efficient exploitation of the comparative advantage of the countries in cheap labour
(new labour perspective) with its minimalists’ view of the state is essential to third world
development. The purpose of this section is to subject the intellectual and philosophical debates
on the politics of external developmental agents (such as International Financial Institutions,
International Trade, MNCs/TNCs, etc.) and the prospects of TWCs development. Some of these
elements that were taken as the external agents for TWCs development and theoretical
arguments and their practical rationale from diverse angle are discussed and presented as follow.

3.2.1. Bretton Wood Institutions (IMF & WB)

The first elements that was taken since the post-WWII period as external agents of development
in TWCs is the International Financial Institutions, namely the World Bank and International
Monetary Fund. The International Monetary Fund (IMF) and International Bank for
Reconstruction and Development (IBRD) (also called the World Bank) were conceived in 1944
during the United Nations Monetary and Financial Conference at Bretton Woods, New
Hampshire, the United States of America, but they came into existence in 1945 when their
articles of agreement were signed by the first member states. Before the establishment of the WB
& IMF, Marshal Plan was developed by United States of America in 1943/44 to help rebuild the

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war torn and devastated economies of European countries that fought 2 nd World War on
American side. While the major mission of the World Bank was to help the countries that fought
the 2nd World war to rebuild their devastated economies, the IMF was to provide the needed
global financial services such as adequate funding, sound financial advice, global trade and
balance of payment management, and to carryout technical/financial research and make available
the reports of such research to countries that may need them so as to improve global economy.
With the help of America’s Marshal Plan combined with the efforts of both IMF and World
Bank, European economies were rebuilt and development was restored to Europe. Since then, the
functions and focus of the IMF and World Bank have shifted to mainly developing countries that
are still having enormous economic problems, and are in dire need of development. However,
these Britton Woods institutions have not been able to replicate what they did to European
economies after the World War II, rather they have become veritable instruments in the hands of
the developed nations particularly the capitalist West who are their major financiers and decision
makers, for the exploitation and underdevelopment of the periphery.

The advanced capitalist countries have been able to perpetrate and perpetuate these exploitation
and dependency in the Third World partly because they are the major financial contributors to
the IMF and World Bank, They have the highest voting powers in these institutions, and they do
not hesitate to use such powers to benefit themselves at the expense of the Third World. By
virtue of their financial contribution to these global financial institutions, the Western nations are
the decision makers and as such they dictate who gets what, how and when. This is a clear
manifestation of the aphorism that he who pays the piper dictates the tune. The G-7 members
(United States, Canada, United Kingdom, France, Italy, Germany and Japan) are top contributors
to the World Bank and IMF, and together they control over 40 percent of the votes. The US is
the only country with a super-majority power to block any decisions of the World Bank. The
World Bank president is always an American and the president of IMF is always European.
Therefore, the developing World has little or no say over the policies of these international
financial institutions. There is no doubt that the World Bank and IMF support development in the
Third world countries by given them loans or grants for development projects such as rural
electrification, rural telephony, health care, construction of dams and irrigation channels for
agricultural production, urban renewal (construction of street roads, waste management, and
provision of potable water and street lights in some urban cities) and some other World Bank and
IMF Assisted Projects.

However, the conditions that are usually attached to these loans and the manner in which the
projects they are meant for are executed do more harm than good to the economies of the Third
world. In Africa for instance, the interest rate IMF and the World Bank attach to their loans for
countries in the continent is so high that at times one wonders if these institutions are really
development-oriented, or are they profit-oriented? It would have been a different thing if these

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institutions are commercial banks or enterprises whose major goal is profit maximization. But in
a situation where they were set up with a mandate to fast track global development, it becomes
worrisome when these global financial institutions pay more attention to interest rate on loans
and profit making rather than development. Even the conditions for servicing such loans are
sometimes designed in such a way that the recipient countries cannot fulfill them, and as such
would have to pay through their nose to service the debt and arrears that would accumulate over
time. Any wonder many countries in Africa suddenly became heavily indebted nations and had
to be granted debt relief so that their already bankrupt economies can remain afloat.

Another inimical condition usually attached to loans from IMF and World Bank is the insistence
by these institutions that the recipient countries must not only pay for consultancy which often
takes half of the loan, but also purchase the materials that would be used to execute the projects
from the West, notably the major financial contributors to the institutions. The consultants are of
course expatriate from the institutions or the West. The danger of this is that consultancy alone
consumes significant percentage of the loan thereby leaving little or nothing for the execution of
the projects. Also, the recipient states spend huge part of the loan on importation of materials
which otherwise could be sourced or produced locally. For example, in 2010/2011, the World
Bank granted Nigeria millions of dollars on loan to control malaria which is one of the major
child killer diseases in the country. However, one of the conditions attached to the loan was that
Nigeria must import the materials for the programme such as “insecticide treated mosquito nets”
from America and Europe. Of course we all know that Nigeria has the local capacity to produce
insecticide treated mosquito nets, but she was not allowed to do so. Then fundamental question
is: if developing countries are not allowed to produce goods as simple as mosquito nets, how can
they attain self-sufficiency or even development which the World Bank claims to be facilitating?
These strategies are not only inappropriate, but also constitute impediments to the developing
countries quest for sustainable development.

Moreover, imposition of market economy driven reforms has become a constant feature or
condition of IMF and World Bank loans. It is a known fact that more often than not the so-called
development partners foist on developing countries reforms that are based on market economy
principles through the IMF and World Bank. Most at times, they don’t mind cooperating with
even corrupt regimes in the Third World inasmuch such regimes agree to open up their
economies so that the so-called invisible hands of forces of demand and supply would regulate
the prices of goods and services. But Polanyi (1944) has argued that this very principle of self-
regulating market is not only untenable, but also utopian because government always intervenes
and regulates the economy even in advanced capitalist nations like Britain, USA etc. A recent
example was the use of billions of dollars as bail-out (giving public money to distressed private
companies) by the US government during the 2008 and 2009 global economic melt-down to save
companies like the General Motors (GM) and Citi-Bank from bankruptcy and possible collapse.

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In fact, the imposition of open market system on the developing countries is being used to
exploit them because once they open up their economies; that means the developed nations do
not waste time to saturate the Third world markets with cheaper and more quality goods which
often have competitive edge over the locally made goods. This creates low demand for locally
produced goods, but high appetite for foreign goods. The implication is that local industries are
kicked out of business due to low patronage, and the dependency of developing countries on
industrialized nations is deepened.

It is worthy to note at this juncture that some of the IMF and World Bank led Reforms in the
Third World are at times in conflict with the internal development plans of developing countries.
This is what Ake (1996) called ‘competing agendas’ and according to him, “nowhere is the
conflict more evident than in the rift between the Bretton Woods institutions and African
governments over approaches to African Development. The Structural Adjustment Programme
(SAP)” of 1986 in Nigeria is one of such IMF/World Bank led reform and development initiative
that had catastrophic consequences on Nigerian economy. Up till today, Nigeria is yet to recover
from the negative impact of the austerity measures and the devaluation of naira which were part
of SAP. Nevertheless, the IMF and World Bank are sometimes unwilling to fund development
programmes in the Third world countries or even help them when they are experiencing
economic crisis. For example, the IMF has committed billions of dollars in bailout to the Euro-
Zone Debt Crisis with little conditions attached. Nobody is asking Greece, Italy, Poland and
Spain to use their Foreign Reserve to solve their debt problem. If Africa countries were to
experience such debt crisis, it is unlikely that IMF would extend such gesture to them, and
moreover, the IMF would have compelled such countries to use their Foreign Reserves and
tackle the problem just as it happened during the debt relief in which Nigeria for instance had to
spend 12 billion dollars of her Foreign Reserve on debt-buy-back so as to have 18 billion dollars
debt relief.

From the foregoing analysis, it is clear that the international monetary machines such as the IMF
and World Bank are double edged sword which in one hand support global development, but on
the other hand contribute to the underdevelopment of the Third world through its policies. We
therefore conclude that these International Financial Institutions are more or less veritable
instruments in the hands of the advanced capitalist countries for deepening dependency and
underdevelopment in the Third world states particularly those in Africa. Thus, they should be
reformed in such a way that their policies will always benefit both the rich and the poor countries
of the world irrespective of a country’s financial contribution to the institutions or voting power
in the institutions.

3.2.2. Multinational Corporations & TWCs Development

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Multinational corporations (MNCs) refer to business conglomerates that have their operations
across national boundaries. They are also known as Transnational Corporations (TNCs),
representing those foreign private enterprises whose parent companies and headquarters are
located in their respective home countries of their owners, but have subsidiaries spread across
different other countries of the world. The operation and management of the subsidiaries are
directed from the headquarters which are located thousands of miles away. Their activities
usually transcend the frontiers of different countries by establishing branches in other countries.
MNCs are usually hierarchically organized and centrally directed. Quite often, they have a
broader than national perspective with respect to the pursuit of highly specialized objectives
through a central optimizing strategy across national boundaries.

International Multinational corporations usually engage in Foreign Direct Investments (FDIs).

They operate in the various sectors of the economy and the cardinal goal of these companies is
profit maximization and repatriation of such profits to their home country. Their activities
usually include banking, manufacturing, transportation, mining and communication. One central
thing about MNCs is that they are usually from developed countries of Europe, United States,
Canada and Britain where they have their headquarters. In recent times, some MNCs now
originate from newly industrialized countries of Hong Kong, Korea and Singapore. In today’s
world, it is no overstatement to assert that the MNCs have become so powerful with far reaching
tentacles that curiosities are rising on whether they undermine the abilities of supposed sovereign
states to control their economies and the foundations upon which the present international system
was built.
3.2.2.1. Arguments for & against MNCs
It is noteworthy to state here that the activities of MNCs have stimulated intense controversies
between the scholars from modernization and dependency orientation. These controversies arise
from the facts of their growing numbers and intimidating economic clout. For instance whereas
western scholars insist that MNCs are agent of development as they initiate and sustain
investment especially in developing countries with their FDIs. Their position is that MNCs
through their investments create jobs and attract capital and technology to the areas where they
operate in the Third World. There however exist radical scholars who posit that the MNCs have
contributed immensely to the impoverishment of the bulk of the Third World. Their argument is
that the MNCs have contributed to unemployment in developing countries where they operate
since they often hire expatriate worker for their oversea offices. Let us see some of the
arguments for and against MNCs within the context of TWCs development processes.

3.2.2.1.1. Arguments for MNCs

There is no doubt that MNCs do make some positive contributions to the development of their
host country. For instance, they pay royalties and taxes to the government of their host country.
Thus, they are potential source of revenues to the government. Also, MNCs do provide
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employment to the indigenes of their host communities. Some of the indigenes or citizens of the
country where MNCs are sited are usually employed to work in these companies. This helps in
solving the unemployment problem. Moreover, MNCs, in fulfillment of their corporate social
responsibility, do provide social infrastructure in their host communities. In other words, they
sometimes help the government to provide basic amenities such as roads, hospitals, potable
drinking water, schools and electricity for the well-being of the citizenry. In some instances, they
give scholarship to the indigenes of their host communities. Specifically, the anticipated positive
sides of MNCs on the developmental endeavor of African states include:

o MNCs increase the volume of world trade

o They assist the aggregation of investment capital that can fund development
o Finance loans and service international debt
o Underwrite research and development that allows technological innovation
o Introduce and dispense advanced technology to less-developed countries
o Reduce the costs of goods by encouraging their production according to the principle of
comparative advantage
o They generate employment opportunities and generate income and wealth for masses of
the developing world citizens
o They encourage skill transfer and training of workers
o They produce new goods and expand opportunities for their purchase through the
internationalization of production
o They disseminate marketing expertise and mass-advertising methods worldwide
o They promote national revenue and economic growth; facilitate modernization of the
less-developed countries
o They advocate peaceful relations between and among states in order to preserve an
orderly environment conducive to trade and profits.
o They breakdown national barriers and accelerate the globalization of the international
economy and culture and rules that govern international commerce.

3.2.2.1.2. Arguments against MNCs

Multinational corporations have played, and continue to play a critical role in the generation and
intensification of the contradictions of underdevelopment in Africa and throughout the third
World. As opposed to the misleading conception of MNCs as partners in the development of
African economies, empirical realities suggest that MNCs in Africa are agents for the pillage of
natural resources, super exploitation of labour, and net transfer of capital from poor countries,
technological retardation, structural distortions, political instabilities, cultural degradation and
other abuses on Third World countries. Some scholars and development practitioners’ argued
specifically that:

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 o MNCs give rise to oligopolistic conglomerations that reduce competition and free
enterprise

o MNCs raise capital in host countries (thereby depriving local industries of investment
capital) but export profits to home countries.

o MNCs breed debtors and make the poor dependent on those providing loans.

o MNCs limit the availability of commodities by monopolizing their production and

controlling their distribution in the world market place.

o MNCs export technologies that are ill-suited for underdeveloped and developing
economies.

o MNCs inhibit the growth of infant industries and local technological expertise in less-
developed countries while making Third World countries dependent on First World
technology.

o MNCs erode indigenous cultures and national differences, leaving in their place a
homogenized world culture dominated by consumer-oriented values.

o MNCs widen the gap between the rich and poor nations.

o They increase the wealth of local elites at the expense of the poor.

o MNCs support and rationalize repressive regimes in the name of stability and order.

o MNCs challenge national sovereignty and jeopardize the autonomy of the nation-state.

3.3. International trade & TWCs Development

The barter of goods or services among different peoples is an age-old practice, probably as old as
human history. International trade however refers specifically on an exchange between members
of different nations and accounts and explanations of such trade begin only with the rise of the
modern nation-state at the close of the European middle ages. With increase in civilization and
traveling added to the known benefits of specialization and division of labour. Webster’s new
encyclopedic dictionary defined trade as the commercial exchange, interchange or transaction of
goods and services between or among trading partners. International trade therefore means the
commercial transaction or exchange that occurs between two or more countries. Countries trade
because they are different from each other. Nations engaged in trading for the same reasons for
which individuals or groups within the country trade with each other instead of each one
producing his own requirement. The reason is that they are enabled to exploit the substantial
advantages of division of labour to their mutual advantage. Countries rely on foreign countries
for much of their raw materials or sell a significant portion of their output abroad. International
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trade makes available a range of materials and process that could not conceivably exist in one
restricted.

International trade is the exchange of capital, goods and services across international borders or
national territories. International trade is the trade that takes place between one country and other
countries; it is a trade transaction that takes place between one or more countries or businesses
across national borders. It is different from domestic trade which takes place within a country
and uses local currency. International trade involves the use of international currencies and to
obtain this, one has to go through some procedures. International trade uses a variety of
currencies, the most important of which are held as foreign resent by governments and central
banks. It was observed that the US dollar is the most sought-after currency in international trade,
with the Euro in strong demand as well for international transactions. While domestic trade
which takes place within a country and uses local currency international trade takes place
between countries and uses international currencies such as dollar, euro, etc. The main difference
is that international trade is typically more costly than domestic trade. The reasons is that a
border typically imposes additional costs such as tariffs, time costs due to border delays and cost
associated with country differences such as language the legal system or culture. Another
between domestic and international trade is that factors of production such as capital and labour
are typically more mobile within a country than across countries.

3.3.1. The need for international trade

The reasons for trade between countries are not in any way different from reasons individuals
trade within a country. In essence, international trade is not more than trade between individuals
who live in different countries. The importance of international trade is as follows:
o Imports serve domestic industry: Domestic industries would have pretty difficult time
if basic raw materials, machinery and other needs are not met. Some domestic industrial
needs are only met by import.
o Import serves domestic consumers: International trade enlarges the range of
consumer’s choices of goods and services. Without international trade consumers will
have fewer choices.
o Exports are vital to many domestic producers: The market for nations export is very
important. For example without international trade, the market for the Nigerian crude oil,
cocoa, rubber etc would have been limited to domestic economy.
o Exports serves as foreign exchange earners: Exports of goods and services act as
foreign exchange earners to the domestic economy. Foreign exchange availability is
essential requirement for the survival of any national income.
o Exports act as agent of growth: Other countries demand for goods and services
produced within a domestic economy acts as a catalyst to the growth of the total spending
and hence growth in the gross national product of such an economy.

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 o International trade gives room to competitors. Foreign goods compete with the local
goods in the market. Foreign markets may grant local manufacturers greater potentials for
growth.
o Access to capital/greater returns on capital. International trade enables countries with
limited capital to either borrows from capital rich countries or attract direct investment
into the countries and thus enjoy the benefits imported capital and technology investment
abroad may yield higher returns than additional domestic investment, particularly where
the foreign market is growing.
o Opportunity cost: International trade occurs because no single country has the resources
to produce everything well. The products a country decides to produce depend on what
must be scarified to produce them; that is, whatever resources a country uses to produce
one product are no longer available for producing some other product. Those things we
have to give up in order to get more of what we want are called opportunity cost, and
they determine what countries produce for trade. For example, Saudi Arabia exports
crude oil. The Saudis could have chosen to export wheat, but they lack the resources (the
arable land, the water, and climate) to grow wheat efficiently.

3.3.2. Theories of international trade

Any theory of international trade must explain reasons for trade and gains for trade or why
international trade takes place for the same reasons for which inter-local, interstate or
interregional trade (trade between districts or regions within a country) takes place. There were
lots of evolutionary theories of international trade in the past centuries. Let us see only two of
these theories:

o The theory of absolute advantage: As to this theory, trade between different countries
developed first where one country could produce something desirable which others could
not. If a nation is the sole producer of an item, it has an absolute advantage over all other
nations in terms of that item. Another absolute advantage exists when one nation can
make something more cheaply than its competitors. An absolute advantage is a nation’s
ability to produce a particular product with fewer resources (per unit of output) than any
other nation. International trade therefore owes its origin to the varying resources and
climate of different regions. The basis of international trade falls along the division of
absolute advantage, which may be defined as the good or services in which a country is
more efficient or can produce more than the other country or can produce the same
amount with other country using fewer resources. This theory was proposed in 1776, by
Adam Smith. He also states that trade between two countries will take place if each of the
two countries can produce one commodity at an absolute lower cost of production than
the other country. This shows that there is absolute difference in terms of cost since each

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 country can produce one commodity (Nigeria cocoa and Austria lace textile material) at
an absolute lower cost than the other country.

o Comparative advantage/factor endowment Theory: This theory proposes that

countries differ in their factor endowment. Factor endowment consists of differences in
capital, labour and land. For example, a rich nation like the United States has a large
amount of expensive capital equipment hence can specialize in goods such as chemicals,
automobiles. Other nations with an abundant labour supply like Japan finds it efficient to
concentrate on making television sets, which require the assemblies of components by
hand. Other reasons for international trade are: differences in tastes, differences in
industrial development and the level of technology, existence of special skills in some
countries and differences in climate. For instance assume that Ethiopia produces coffee
better than Togo and Togo is better at producing fish than Ethiopia. Ethiopia should
specialize in the production of coffee, while Togo concentrates its resources; on the
production of fish. They can trade their products. But even if Ethiopia is better than Togo
in the production of both coffee and fish, while Togo is at a disadvantage, both countries
can still benefit by each one specializing in the production of the goods where it has the
greater comparative (cost) advantage or the least comparative (cost) advantage. Ricardo,
thus, took the application of the law to trade between two countries and concludes that
both countries will benefit if each of them concentrates on producing the commodity
where it can perform more efficiently and exchange the product with the one it can
produce less efficiently. In sum, the theory of comparative advantage explains the
principles of international division of labour.

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 CHAPTER FOUR
EMERGING ISSUES IN DEVELOPMENT

4.1. Globalization & Third World Development Discourse

4.1.1. Globalization (Meaning, dimensions, actors, etc.)

Globalization is a highly contested and a very complex process that can be understood in
different perspectives, economic, social, political and cultural perspectives. Globalization can be
defined from an institutional perspective as the spread of capitalism (Ewan, 1995). The term
globalization represents a multiplicity of linkages and interconnectedness that surpasses the
nation-states, which together, constitute the modern world system. It sets up a process through
which events, decision, and activities in one part of the globe can and do have great
consequences for individuals and communities in very distant parts of the world. Currently, he
added, information, goods, capital, people, language, images, communication, crime, culture,
pollutants, drugs, fashions entertainment, beliefs, among others, all immediately move across
territorial boundaries. In another development, Oman (1994:27) globalization is used to mean the
multilateralism processes in which case the global trading system, multilateral trade
liberalization and government policies are the focus. Here globalization is understood to mean a
multilateral towering of policy impediments to the movement of goods and services across
national as well as regional boundaries. In the light of the foregoing, globalization can be defined
as the process of intensification of economic, social and cultural relations across international
boundaries. It is principally aimed at the transcendental homogenization of political and socio-
economic theories across the globe.

There are basically four dimensions of globalization that can be identified throughout literature:
o Economic globalization: it is assumed to promote growth and development of the third
world, through the principle of free market economy, trade liberalization, removal of
subsidy, openness of economy for international competition, removal of trade barriers for
other countries to penetrate and compete with local industries and firms, thereby bringing
about efficiency and growth; devaluation of currency.
o Political globalization: it represents the commonalities of almost all countries political
policies and political system in line with liberal political principles. Democratization and
good governance become the global political phenomenon and such motive is supported
and sponsored by the global political institutions and organizations. It is seen as external
donor’s political conditionality for aid is centered on democratization and the promotion
of liberal democracy. This liberal democracy is not quite different from capitalism and as
such cannot address the development crisis of the third world countries.
o Socio-cultural globalization: it denotes the trends in universalization of ways of life and
culture in which almost all global societies have been sharing similar cultural values

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 (mainly that of western culture and traditions) and style of life. This can be explained in
terms of using one language (mainly English), style of life (e.g., dressing, etc.) and
valuation system.
o Technological globalization: the third dimension of globalization is Information and
Communication Technology (ICT). It propelled and spread the policies, events, ideas of
globalization to different part of the world. The ICT revolution brought speedy spread of
the ideas of globalization to different part of the world at a quick and short notice.

4.1.2. Forces/Factors behind Globalization

There are five are main driving forces behind increased interdependence and the emergence of
global society. Although many believe that technological innovation and entrepreneurship are the
main forces behind globalization, these factors cannot alone explain the process of enhanced
economic integration. These, among others, include the emergence of the Trans-National or
Multi-National Corporations (T/MNC); International Trade and investment liberalization;
Communication Revolution; and commonalities of most global issues can be taken as a case in
point behind the intensification of global integration and interdependence of the world
communities and nations.

National governments have played a pivotal role in allowing greater interdependence and
economic integration through the elaboration and adoption of market-oriented policies and
regulations, both at the international and local levels. Increased global integration in a number of
economic areas began to intensify in the 1980s when many governments supported privatization
and economic liberalization. The latter has included “financial sector deregulation, the removal
of controls over foreign exchange and enhanced freedom of trade. Financial deregulation has
resulted in the progressive elimination of capital controls, the removal of controls over interest
rates, and the lifting of traditional barriers to entry into banking and other financial services.
State efforts to uphold free trade and to encourage the reduction of trade barriers have been
reflected in the eight successive negotiating rounds of the former General Agreement on Trade
and Tariffs (GATT), which culminated in 1995 with the establishment of a multilateral trading
system – the World Trade Organization (WTO). The latter has not only led to the reduction of
barriers to trade in goods, but has also proceeded to liberalize services and capital flows.

Bearing in mind that governments have played a crucial role in allowing for growing integration
in a number of areas, increased interdependence has received a great impetus also from
technological innovation, as well as the constant reduction in transportation and communication
costs. These factors are responsible for drastically transforming the ease, speed, quantity, and
quality of international information flows, as well as physical communications. In particular,
information technology and multimedia communications are producing shrinkage of distance and
acceleration of change. During the past decade, two significant developments have accelerated

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the globalization of information flows. The first is that computers have invaded millions of
households. The second is the emergence and development of the Internet technologies. The
former demonstrates that the role of computers has been extended dramatically, not only as a tool
for state and business organizations, but also as a household electronic appliance for information
retrieval and processing, for education, for entertainment and for communication. Such change
leads to a great leap in the technical and human ability for accessing, interpreting and using
information.

Thanks to technological innovations and greater economic liberalization, entrepreneurs,

especially multinational corporations, have taken full advantage of more open markets to spread
production processes all over the world. The opening up of economic opportunities allows the
movement of foreign capital, technology and management, largely from transnational
corporations (TNCs), to host country entrepreneurs and corporations. As national economies
open, mergers between businesses from different countries and purchases or investment in equity
of businesses in one country by owners from other countries are becoming more common.
Although TNCs are not new economic actors, what has dramatically changed is the way they
operate around the world and their increased level of economic power. Economic globalization is
mainly characterized by the rapid expansion of international trade, foreign direct investment and
capital market flows. The decline in transportation costs and technological innovation, in
particular the Internet, have contributed to an increase in the volume of trade, financial flows and
accelerated economic transactions by decreasing the time and methods of delivery and payment
of goods and services. Developing countries received about a quarter of world Foreign Direct
Investment, though the share fluctuated quite a bit from year to year and showing increasing
trends in recent years.

Greater economic integration is not the only relevant aspect of globalization. Improvements in
the technological sphere have enabled inexpensive, instantaneous communication and massive
diffusion of information affecting styles of politics, culture and social organization. The
globalization of technology has contributed not only to the explosive growth of information
exchange via the Internet, but also to the expansion of education opportunities and the creation of
trans-national social networks. Information, which had been the monopoly of the few, is
becoming accessible to wider and more diverse audiences. The relative ease of accessing
information has increased citizens’ ability to share views, to become aware of their rights, to
make their demands known and to increase their influence generally. As a consequence, citizens
are joining together to demand improved levels of services and higher standards of behaviour
from their governments. What is more, social protest has taken on a different form. It is not any
longer confined to one particular country or to local issues; it transcends national borders. Trade
Organization meeting in 1999, are examples of these new forms of transnational organized
movements and of globalization itself.

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Similarly, commonality of most issues that urge for the integration of global resources and
expertise also facilitated the global integration processes. This trend will most probably be
slowed down as a consequence of the increase in international terrorism, which has led to more
tight security policies and greater application of immigration laws. Most issues affecting human
survival acquiring global attention for their cross-border implication demanding for coordinated
political solutions. Among others, widespread poverty, epidemic such as HIV/AIDS,
environmental pollution, malaria, etc., terrorism, drug trafficking, migration, and so forth have
trans-border implication and deserve global political solutions. The emergence of International
Inter-Governmental Organizations (IIGOs) such as UN, EU, AU, etc. and International Non-
governmental Organizations (INGOs) and others have accelerated the political aspects of global
integration through the frame of globally binding norms and rules of conducts for mutual well-
being of all human societies. International and regional organizations, such as NGOs and
transnational networks, based on shared interests rather than on geo-political similarities
proliferated in the late 20th century. What has changed in recent past years is perhaps the
increasing number of NGOs and their growing political leverage. Moreover, NGOs are being
increasingly invited to many global forum and meetings such as the United Nations Conference
on Financing for Development and the recent World Summit on Sustainable Development.

4.1.3. Opportunities and Challenges of Globalization in TWCs Development

As mentioned above, globalization presents both opportunities and costs for all nations, but most
importantly to developing countries. The relationship between globalization and development is
quite complex and should be analyzed in a non-ideological, impartial way.

4.1.3.1. Argument for globalization to TW Development

Greater economic openness, foreign direct investment, and transfer of technologies offer
potential opportunities for economic growth. Free trade allows specialization between different
regions, allowing them to produce according to their own comparative advantages; it also
expands the consumption choices of citizens by providing increased opportunities to buy goods
and services from other countries. In this respect, it is very important to keep in mind that
international trade is not a zero-sum game where some countries are winners and others are
losers. On the contrary, trade benefits all countries because it enhances the choices of the
consumer and the quality of products. If competitive, it lowers prices and raises real wages. It is
also worthwhile to underline that contrary to what is commonly believed, countries are not in any
degree in economic competition with each other, or that any of their major economic problems
can be attributed to failures to compete on world markets. Firms compete; countries do not.

Economic globalization has also provided opportunities for developing countries in that it
expands the size of their markets for export and attracts foreign capital, which aids development.

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Foreign investment is conducive to a transfer of technologies and knowhow, which increases
productivity. Another positive effect of globalization is greater competition among firms, which
benefits consumers who have access to products at increasingly lower prices. Those who gain
most from free trade in both developed and developing countries are very often the poorest since
they can buy goods at more affordable prices, and therefore have a higher standard of living. In
this sense, free trade can be seen as an indirect way to reduce poverty. Unfortunately, until now
developed countries have not lifted their protective barriers in many crucial sectors for
developing countries. In fact, while "integrating with the world economy is a powerful vehicle
for growth and poverty reduction in developing countries, it would be still more powerful if the
rich countries further increased the openness of their own economies. We should recognize that
many sectors, like textiles and agriculture, which could provide real new opportunities for
developing countries, have not been liberalized. Another area of great concern is related to
intellectual property rights, and the use of anti-dumping practices, which seem to discriminate
against producers in developing countries. Finally, it is believed in some cases that greater
openness may even encourage governments to undertake reforms that lead to improvements in
legal and economic institutions, as well as to adopt policies that favour greater competition.

4.1.3.2. Argument Against globalization to TW Development

Experience shows that globalization does not affect all countries to the same extent. In general,
and as recently experienced, if it is true, for instance, that the negative externalities of a financial
crisis in one region of the world affect other regions around the globe, it is also true that some
countries suffer more than others because they lack the capacity to contain the adjustment costs
of globalization. The trading rules have so far benefited more the industrialized countries than
the less developed ones. Reducing the role of government in key social areas and downsizing
public services in many developing countries, especially in the South and East of the world, as
well as neglecting the important task of reinforcing political and economic institutions, all of
which left many countries unprepared to meet the challenges and rapid transformations of
globalization. The question thus is not whether to go global, but rather how to globalize. Africa
suffers particularly from its marginalization in the process of globalization. Africa’s shares in
trade, investment and advances in technology have diminished further over the last decade.
Scholars across the world argued that global capitalism in all its various manifestations was
designed from the outset to enrich the industrialized capitalist world at the expense of the Third
world development. We further asserted that the forceful disarticulation, monetization and the
unjust incorporation and subjugation of the Third world economies into the world capitalist
system in which they produce what they do not consume, and consume what they do not
produce, has produced an unfair comparative price advantage for the western finished goods as
over the primary products of the Third world. This has contributed to more development in the
West, but has deepened underdevelopment in the Third world particularly Africa.

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However, whatever the gains of globalization may be, its fallouts far outweigh its gains. It has
integrated the world economies such that whatever affects one country particularly the big
powers affect the entire world. In other words, it transfers the problem of one country to other
countries that perhaps do not contribute to the problem. For instance, the Global Recession
which lasted between 2007 and 2009 started in USA, but spread like wild-fire to other countries
of the world including Ethiopia. Also, the effects of globalization differ from one nation to
another. While the industrialized nations and their MNCs gain more, the underdeveloped nations
gain less from international trade and investment. Moreover, the underdeveloped nations are
more adversely affected by globalization than the developed nations. The reason being that
unlike the latter, the former are characterized by weak social infrastructure, low export prices,
unfavorable terms of trade, debt crisis, and lack of bargaining power in international relations.
Khor (2000) laments that globalization is very uneven process with unequal distribution of
benefits and losses. The uneven and unequal nature of the present globalization process is
manifested in the fast-growing gap between the world’s rich and poor people, and between
developed and the developing countries, and in the large differences among nations in the
distribution of gains and losses.

The argument that the Third world states like Ethiopia would reap bountifully from globalization
if they open up their economies is misleading. For example, over the last few years, it has been
observed that the more TWCs embraced globalization through privatization and deregulation, the
more underdeveloped it has become. In fact, experiences have shown that un-checkmated
globalization is a double-edge sword. Even USA which champions globalization around the
world is aware of this simple fact. That is why the state (government) is still central to the US
economy. Also, when the US was hit hard by the global economic meltdown in 2008, President
Barack Obama came up with a government intervention policy known as “Bailout” through
which the government rolled out billion of dollars to bank-roll and save some of the troubled US
companies such as the AIG, General Motors (GM), Citi-Bank etc, from bankruptcy and collapse,
having been hugely affected by the global financial crisis. This is the same country that has been
compelling the Third world governments not to intervene in their economies, but rather liberalize
and allow the market forces to be the regulator. We therefore conclude that the reduction of state
to a minimalist status as prescribed by globalization will eventually lead to the crucifixion of the
state. But economies in the Third world particularly those in Africa still require the full attention
of the state or government to provide not only the enabling ecology for businesses to thrive, but
also the ever-needed adequate regulations. Allowing the market forces to regulate African
economies with their weak institutions will only result in further exploitation, hardship and
underdevelopment. The recent global financial crunch has opened the eyes of many leaders of
various countries to see the complex social and environmental consequences of unrestrained
markets which globalization advocates for. Global capitalism which is today in the guise of
globalization is founded on the foundation of exploitation of many by a privileged few, and that

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is partly responsible for the global inequalities and the resultant class struggle cum development
crisis across the world.

4.2. Democracy & Development (global discourses)

The second half of the 20 th century was characterized with the most dynamic third world
countries’ economies typically governed by authoritarian regime. Almost all of Asia’s most
impressive “economic-miracles” was transpired under the authoritarians or Semi-authoritarian
developmental state or regime type. It is against this development that some western inspired
scholars and international institutions have argued that authoritarian governments are better
equipped to impose development plans. However, for every authoritarian success story, there
have been several economic disasters, corrupt dictatorship throughout Africa, the Middle East,
Central America, and the Caribbean have plundered their country’s limited wealth and used the
economy to reward their political allies. However, there is hot global discourse on the nexus
between democracy and development for the development processes of third world countries.
Let us see some of these debates in a little detail.

4.2.1. The Case for Democratic Regime for National Development

Several overall statistical analysis of third world economic growth rates in recent decades reveal
that authoritarian government don’t perform better than democratic ones. It is contended that
government that need to appeal to a broad coalition of voters (democracies), are more likely to
pursue policies that promote broadly based economic growth while governments that owe their
incumbency to a small coalition of strategic allies (dictatorship) are more likely to be corrupt and
to pursue policies designed to keep themselves in power no matter what the cost to the national
economy. Some scholars therefore argue that democratic government and the world wide
movement towards democracy may produce faster economic growth along with greater political
justice.

Human beings naturally love freedom. They want to be appreciated and respected, and to be
allowed to develop their talent for self-actualization. They are also interested in those who
govern them and under what system of government. Human beings are not only interested in the
political aspects of their lives, but also in their standard of living and consistent strivings for
improvement in the quality of their livelihood. But improvement in the quality of life is
dependent on levels of development. From the above, it becomes clear that democracy and
development are directly related. With the disintegration of Soviet Bloc communism in the early
1990s and the subsequent expansion of democracy and democratic movements in Third World
countries, a growing worldwide consensus has emerged in support of democracy as the best form
of government to generate and sustain development in poor countries. The early years of the 21 st
Century were particularly hard for former dictators and quasi-dictators because it marked a
decade of transition from authoritarian to democratic governments throughout the world.

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Authoritarian regimes throughout the world and especially throughout the Third World countries
began to fall in the face of spreading democratic movements.

On the other hand, it is imperative to note here that because development has so often been
defined largely in terms of the economic, it has impliedly posed a question on the issue of the
relationship between democracy and development. However, it has been observed that political
condition characterized with democratic structures is the greatest impediment to development.
Even though political independence brought about some changes to the formally colonized
societies of third world countries, the character of the state remained much as it was in the
colonial area. Hence Ake (1996:3) argues that state continued to be totalistic in scope
constituting a statist economy. It presented itself as an apparatus of violence, had a narrow social
base, and relied for compliance on coercion rather than authority. The most debated aspect of
utility of democracy is its relation between democracy and development. Consequent upon that,
we can pose the question such as: Is democracy required or necessary for development? Are
third world countries better off in terms of development with authoritarian regimes?

In trying to provide answer to these questions, it is instructive to note that some of the elements
of democracy are also some important aspects of what development means today. Some
components of democracy such as rule of law, the consent of the governed, accountability and
transparency are now universally accepted as being defining elements of political development.
The thrust of this argument is that democracy ensures accountability of rulers to the ruled with
the result or expectations that rulers are motivated to allocate resources effectively and
productively in order to be allowed to stay in power. Hence, democracy ensures that rulers limit
their extraction of resources to what is optimal for growth and productivity. It can also be said
that democracy commits rulers to avoid pursuing selfish interests rather than policies which
optimize growth and collective well-being.

4.2.2. The Case for Authoritarian Regime for National Development

A former leader of one of the most successful third world countries Lee Kuan Yew cited in (Ake,
2003:80) observes that: “I don’t believe that democracy necessary leads to development. I
believe that what a country needs to develop is discipline more than democracy. The exuberance
of democracy leads to indiscipline and disorderly conduct which are inimical to development.”
One London Economist cited in Ake (2003:581) also noted that: “…Asia has had the fasted
growing economies in the past 25 years without having the best democracies and suggesting that
authoritarian government find it easier to get people out of poverty than democratic
governments.” Against this backdrop those that argued that Africa, for instance, cannot deal
with the crises of underdevelopment without embracing democracy at any rate, abandoning the
legacy of authoritarianism must also consider some authoritarian military regimes in countries

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like China and other authoritarian states like Zaire and even North Korean have done not so
much in terms of development.

Interestingly, authoritarian regimes are seen as sacrifices for the future of one’s country. This is
predicated on the assumption that in the context of early and middle stages of development, an
authoritarian system may be more functional for supporting the modernization process than
democratic system. Authoritarian regimes in countries from Ferdinand Marcus of Philippines to
Lee Kuan Yew of Singapore, from Ayub Khan during the second record of military rule in
Pakistan to Mrs. Indira Ghandhi during the emergency in India. Other countries include Iran,
China, Taiwan, South Korea etc. These regimes have justified themselves as removing the
roadblocks to future development. In contrast, India, Indonesia and Communist China all relied
heavily on state planning for development and countries like U.S.A, Great Britain and the
present India have embraced democratic government and have justified themselves by achieving
high level of development.

There are several democracies vying for preferment in a struggle whose outcome is quite
uncertain in TWCs. However, democratic movement in the third world countries is not a single
homogenous movement with a coherent doctrines and an agenda. There are variations from one
country to another but the groups which make up the democracy movement usually includes
political elites who have been denied access to political power, social groups which have been
excluded from power and often from their mere prerogatives of citizenship by religious, national,
regional or ethnic discriminations, business people who deplore prevailing governance practices
especially corruption, lack of accountability and transparency, and the rule of law, element of
civil servants groups, workers and peasants and the international community, especially, the
industrialized capitalist Western countries’ development agencies and multilateral institutions
such as IMF and World Bank. This group advocate for minimalist liberal democracy which focus
on multi-party elections. This is the kind of democracy that the disaffected political elites,
business people and some intelligentsia want. This kind of democracy cannot address the
fundamental problem of development in the TWCs. On the other hand, the democracy that the
masses wants is socialist democracy with emphasis on concrete rights and equality with
substantial investment and promotion and the empowerment of the ordinary people- This is the
kind of democracy that can and will address the fundamental problem of development of the
TWCs as experienced in countries like the U.S.A, Great Britain, India, China and even
Indonesia.

4.2.3. The Need for Democratization of Development

Democratization of development means that the people possess their own development which
becomes something the people do about themselves and their circumstance rather than something
done for them. It means, most importantly, that development becomes a lived experience instead

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of a received one. It also means the people become the agents of development as well as its
means and its ends. If the people are the agent of development, that is, those responsible for
deciding what developments is, what values it is to maximize, they must also have ultimate
control of public policy. Social programs are the central democratic initiation of an alternative
development strategy. These initiatives have direct connections to people’s lives, and their
implications for social changes are more readily apparent than is generally the case of
macroeconomic policies. Social programs are a primary component in any democratic
development because they meet real, basic needs of a wide spectrum of the population. Social
programs are for the people. They are integral to democratic development because they can be
the foundations for effective popular participation. For instance, education gives people
knowledge, which enhances their analytic capacities, and builds their confidence, and directly
contributes to their political power. Finally, as Ake (2003) posits that, “if people are the ends of
development, then their interest and well-being is the measure of all things, the supreme law of
development.” This will graduate to democratic development which emphasizes, taking the
people as they are, not as they ought to be, someone else’s image of the world. This has become
imperative because colonialism gave Africa and some TWCs a legacy of a state which had near
absolute control of society, polity and, economy and yet remained the private property of the
rulers. Consequently, politics in most of these countries tendentiously negates its very essence,
which is development. The debate on democratization of development is centered on the call for
dismantling state machinery and administrative planning, and its replacement by economic
agents acting in a deregulated free market system.

4.3. Foreign Aid and Debt & Development

4.3.1. Foreign aid in Africa

Foreign aid represents both the material and the non-material assistance which a country in need
receives from another country, other countries and/or international aid agencies. In other words,
it is any financial, material or human assistance from a donor country or/and institutions to a
recipient country. That is to say that foreign aid may be in the form of money, humanitarian
assistances (e.g., rescuers, medical doctors, lawyers, engineers, etc.) or materials such as food,
medications, building materials, weaponry and so on. Almost every developed nation has an aid
agency through which they render their help or support to the poor countries of the world. Some
of the most famous of such aid agencies are the United States Aid for International Development
(USAID), the Germen International Development Assistance (GTZ), etc., which have given
billions of dollars in aid to poor countries across the world particularly to those in Africa, Asia
and South America. Moreover, poor countries receive aid from the rich nations and international
organizations like the United Nations, the European Union, the World Bank, and other regional
and international intergovernmental organizations and financial institutions to address one
developmental need or the other.

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On the surface, foreign aid may be given for the provision of social infrastructure; or to support
democratization policies; or to cushion the effects of natural disasters such as drought,
earthquake, tsunami, flooding, etc, or to wage war on terrorism. War and crisis have made most
countries in Africa so poor that they depend largely on foreign aid to survive. Currently, all
countries in Africa including Ethiopia receive one form of foreign aid or another from
governments of developed world, international intergovernmental organizations, International
NGOs and other aid agencies and individuals. However, there is a controversy regarding the real
essence of foreign aid offered to TWCs. Some scholars argue that there is hardly any of such
foreign aid that has no string attached to some conditionalties on recipient countries. They argue
that, in some cases, foreign aid is tied to particular political and economic reforms such as Neo-
liberal’s policies or project of the donor nation. Such reform or project is more often than not
designed to promote economic well-being and influence of the donor nation at the expense of the
recipient country. In fact, foreign aid is sometimes used to promote “capitalist economic system”
or “imperialism” in TWCs, including in Africa countries. Other scholars from developing world
still argue, for example, that the preconditions that may attach to foreign aid include the use of
foreign aid to promote European languages and culture/value to the detriment of developing
countries’ indigenous languages and culture/values. This often creates cultural vacuum in the
Third World. They concluded that all these mechanisms employed under the umbrella of aid
only serve one purpose–deepening of imperialism or neo-colonialism by inculcating Western
values and culture on the Third world so as to perpetuate the parasitic dependent relationship
between the West and developing countries. In sum, they all conventionally argue that foreign
aid is most times tied to liberal policies such as privatization and deregulation under which the
Third world countries are compelled to open up their economies with promises of rapid
economic benefits. Regrettably, such policies usually end up in compounding the problems of
the Third world rather than solving them. The truth is the more they opened up their economies,
the poorer they have become, whereas the richer the advanced capitalist nations have become.

4.3.2. Foreign Debt in Africa

Many countries of the world borrow external loans to finance their revenue/budget deficits and to
finance their urgent-and-long-term developmental needs. This is particularly true for poor
countries of the world, including those African, Asian and Latin American countries.
Specifically, most Africa countries did collect foreign loans from International Financial
Institutions (IMF and World Bank) and bilateral sources (government-to-government) with the
intention of using them to fast-track their development. There is however a widespread
controversies and discourses on the impact of foreign debt on the development of 3 rd world
countries in general and on the developmental endeavor of African countries in particular. It
argues that most foreign aid to Africa has strings attached which in a long-run undermine
development in the continent on the one hand. Also, foreign debt has been deployed by the

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developed countries of the world (in the form of bilateral loan) and International Monetary
Machines to intimidate the Third world countries into accepting and implementing liberal
policies which often lead their economies into deeper crisis.
Scholars, particularly from developing world, have rather been arguing that external loans that
poor countries collected from external sources have been deepening their underdevelopment
more. Most observers of international affairs believe that the origin of Africa’s debt crisis could
be traced to the “petrodollar recycling” of the 1970s. During this period, the price of crude oil
rose geometrically in the international oil market. Thus oil exporting countries made billions of
dollars, but some of them particularly those in Africa and Latin America in an attempt to build
massive social infrastructure so as to achieve rapid development, started borrowing foreign loans
thinking that the oil boom would continue, and with billions of dollars accruing to them from the
sale of crude oil, they could easily repay the cheap loans. However, the global economic
recession of the early 1980s gave a blow their dreams. Following the recession, the price of
crude oil in the international oil market dropped, exports of developing countries decreased, the
value of dollar increased relative to other currencies, global interest rates increased and the
foreign reserves of the developing countries dropped since they relied on them heavily for their
international transactions. Worst still, their foreign loans started to double since they carry
floating interest rates which increase along global interest rate. To add salt to injury, the creditor
nations and institutions later started attaching additional conditionality to the loans. First, the
floating interest rate metamorphosed into compound interest rate. It was this development that
really caused debt crisis in the Third World especially in Africa because the debtor countries’
debts skyrocketed at a speed that made it increasingly difficult not only to repay the debts, but
even to service them. The cost of debt servicing alone became very high such that it surpassed
the amount borrowed. This was and is still the fate of most debtor nations.

The implication of all this was that money which the debtor nations would have used for
development is often spent on debt servicing and repayment. This has become one of the major
sources of capital flight and underdevelopment in Africa. And the most pathetic aspect of foreign
debt is that a significant percentage of the siphoned money which is deposited in foreign banks
indirectly comes back to Africa as loans on which interest must be paid. This is why some
scholars are of the opinion that the popular perception of Africa as “heavily indebted continent”
is sometimes misleading. The truth is that despite Africa’s debt liability, it still remains a “net
creditor” to the rest of the world particularly the capitalist North. Africa’s foreign assets far
exceed its foreign liabilities. The problem is that while these assets are owned by private
Africans most of whom cornered the commonwealth of their various countries, the liabilities are
public and owed by African people at large through their governments. The accumulated capital
flight from Africa in the past four decades is estimated at 700 billion dollars in real terms, and
over 900 billion dollars if interest earnings are added.

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Apart from capital flight caused by debt servicing and repayment, more than half of the loans
borrowed every year are siphoned out of Africa. Often at times, the loans depart the same year
they are borrowed with significant proportion ending up in private accounts at the very foreign
banks that provided the loans in the first place. The same International Financial Institutions or
creditor nations that made the official lending would help the corrupt African leaders that were
entrusted with borrowing for their countries to misappropriate the loans. The same creditors
would turn blind eye on the illicit wealth accumulation by the corrupt African leaders, and even
offer them the comfort and protection of the banking secrecy laws, to pursue unlawful and
parasitic enrichment. The same creditors would turn back and say ‘African leaders are corrupt’
and that is why the loans were mismanaged by them. In this way, enormous wealth is siphoned
out of Africa to the developed North. In other words, the wealth of the poor countries is used to
subsidize and finance development of the rich nations of the world. Moreover, even the so-called
debt relief has not saved Africa from this exploitation. More often than not, debt forgiveness is
granted after the actual debt or loan has been indirectly repaid by the debtor nation through debt
servicing. Worst still, in most cases the debtor nation is compelled to pay half of the accumulated
arrears and interest on the debt or buy back significant percentage of the total debt in a single
settlement. Accordingly, it was identified that foreign aid and loans to Africa serve more the
interest of the donors and the creditors.

4.4. South-South Cooperation (SSC) & Prospect for TWCs Development

South-South Cooperation is an emerging framework for interactions among countries of the
global South (referred commonly as the Third World) to deal with their developmental
challenges and opportunities. It also refers to the co-operational activities among the developing
countries on the basis of solidarity in a number of areas, including trade and investment,
financial, technical and technological cooperation as well as for the sharing of knowledge,
experiences, policies and best practices. In other words, South-South Cooperation denotes the
cooperative activities between newly industrialized southern countries and other, lesser-
developed, nations of the Southern Hemisphere. The anticipated activities involved in South-
South Cooperation include the initiative of developing mutually beneficial technologies,
services, and trading relationships. South-South Cooperation is seen as an alternative to North-
South cooperation and any sorts of interactions with its implications of western economic and
cultural hegemony over the southern world. The idea of "south-south cooperation" started to
influence the field of development studies in the late 1990s. It was fuelled by a growing
realization that poor nations might find appropriate, low-cost and sustainable solutions to their
problems with other developing countries rather than with the rich north nations of the
industrialized world.

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4.4.1. Origin & Objectives of South-South Cooperation
The historical origin of SSC dated back to the post-second-world-war decolonization period,
particularly to the Asian-African Conference (Bandung Conference) held in Indonesia in 1955,
followed by the formation of the Non-Aligned Movement (NAM) in 1961 and the Group of
seventy-seven (G77) in 1964. Until the 1980s, South-South trade and economic cooperation
represented mainly those political aspirations of cooperation than an economic reality as most
countries of the South were at similar levels in terms of their development status, productive
structure, export-import baskets, investment and technological innovation with natural resources
and low cost labour endowments as their only comparative advantage. By the contrast, trade,
investment, aid and technological cooperation and interdependence between the South and the
developed countries continued to grow robustly, which aggregately hampered the realization of
south-south cooperation.

The milestone of south-south cooperation attest to the historical development of the solidarity of
developing countries to wrestle themselves from the economic manacles and political
subjugation of the developed countries that seem to dictate the terms of participation in the world
economy and global politics. From a modest start in 1910 with the establishment of the Customs
Union Agreement, regarded as the oldest custom union in the world, South-South Cooperation is
now regarded as the biggest platform for the developing countries to actively participate in the
United Nations General Assembly. South-South Cooperation has been more visible in the past
years, thanks to the intensification of technical, cultural, economic and political exchanges
between southern countries. The most profound achievement of this cooperation has been the
creation of regional organizations in Africa, Asia, Latin America and the Caribbean. Up to the
1980s, cooperation activities among the South centered on emerging regional and sub-regional
arrangements towards economic integration, trade and cooperation on political matters such as
the Central American Common Market, the Central African Customs and Economic Union, and
the Association of South East Asian Nations.

During the last two decades of 20thC (i.e., in the 1980s & 1990s), there has however been an
accumulation of development experience and wisdom in developing countries about what works
and what does not work and what are the constraints and lessons learned. Two major United
Nations Conferences on South-South Cooperation have aptly identified the importance, basic
parameter and scope of South-South Cooperation. The First of these Conferences was held in
Buenos Aires in 1978 and produced a Plan of Action which provided a conceptual underpinning
and practical guidelines for realizing the objectives of technical cooperation among developing
countries. The main objective of the Buenos Aires Plan of Action was to promote and strengthen
collective self-reliance among developing countries through exchanges of experience, the
pooling, sharing and utilization of their technical resources, and the development of their
complementary capacities. The 1990s and 2000s have seen as a major economic change in the

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rise of the global South with countries like China, India and Brazil, among others, emerging as
manufacturing, services and agricultural powerhouses globally and spawning regional and global
MNCs/TNCs. Their rise represents a major structural change in their economies with
diversification into all key areas of international production and trade. The South has moved
more to the centre of international trade, investment and production and thus attained the goal
that Raul Prebisch, development visionary, emphasized over 40 years ago of moving from the
periphery to the centre of world trade. The Southern countries and their enterprises have acquired
finance, capital and technological and technical capacities to be able to produce and trade whilst
leveraging their low labour cost advantage vis-a-vis the traditional developed country production
locomotives. Southern enterprises not only trade at the national and regional levels, but have also
established footprints at the global level.

The dynamic South is also developing global brand equity, especially in specific areas of
manufacturing, services and agriculture. Furthermore, in critical areas such as food and energy
security, these developing countries are becoming major players as producers and consumers in
global markets. Developing countries have now become regional and global engines of
international trade and investment growth by virtue of a massive up-scaling of their productive
capacities, in terms of both scale and quality, under the influence of changing structural
diversification in their economies and trade. There is now the potential for the sharing of
experiences among the South, with development-replicating value, through South-South
Cooperation. A similar pattern has emerged in international investment flows, suggesting the
possible emergence of a new geography of international investment relations with developing
countries attracting unprecedented levels of FDI and themselves becoming exporters of capital
and outward FDI to both developed and other developing countries. Not only does South-South
cooperation encompass financial flows, such as loans and grants for social and infrastructure
investment projects and programmes, but it also embraces cooperation through experience
sharing, technology and skills transfer, preferential market access and trade-oriented support and
investment, transmitting and stimulating similar kinds and levels of development, generating
employment and building capital and capacity.

South-South Cooperation aims to promote self-sufficiency among southern nations and to

strengthen economic ties among states whose market power is more equally matched than in
symmetric North-South relationships. South-South Cooperation is important to these nations for
two reasons. First, it contributes to economic advances in southern nations, especially in Africa,
southern Asia and South America. Second, South-South Cooperation lacks the overtones of
cultural, political, and economic hegemony sometimes associated with traditional North-South
aid from the United States, Russia, and Western Europe. While encouraging the self-reliance of
the developing countries, South-South Cooperation creates new challenges for the North.
Developing southern nations have increasingly turned to each other for economic development

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assistance. Highly successful, it has contributed to substantial economic growth in developing
countries. While reducing pressure on northern countries’ aid programs, South-South
Cooperation is altering the global balance of power.

4.4.2. Prospects & Challenges of South-South Cooperation

4.4.2.1. Prospects (Opportunities)
The countries of the South are a tremendous source of tested solutions to development challenges
faced by developing countries including the Least Developed Countries. They offer new sources
of ideas, models and practices for developing world and thus provide major additional
opportunities. It is remarkable in that the countries of the South are at the centre of the new
geography of international trade as producer, trader and consumer in global markets. The new
dynamism of the South is vividly manifested in increased trade and investment flows. The new
dynamism of the South has also been evidenced by increased South-South investment, transfer of
technology and enterprise-level interactions. The LDCs have been major recipients of FDI
inflows from other developing countries. Furthermore, an increasing number of emerging
economies and developing countries have become important sources of development cooperation
finance and technological and technical support for the LDCs. China, India, Brazil and South
Africa in particular have become important sources of development finance. Developing
countries have developed new technologies, technical know-how and competencies in a number
of areas including renewable energy, genetic engineering and biotechnology, electronics and
semiconductors, and information and communication technology. They are also exporting capital
intensive products and capital machineries to other developing countries. These technologies and
technical know-how could be transferred to, and replicated in, other developing countries.

By far, the principal South-South Cooperation activities in recent years are economic in nature,
and either bilateral or triangular (i.e. in partnership with a third country or multilateral
organization). In particular, China, India, Brazil, and Egypt have invested in areas rich in
extractable natural resources. China has cancelled over 10 billion dollars in debt to African states
and invested heavily there in oil exploration and timber development. China has also partnered to
develop - and co-own - production facilities and infrastructure across Africa, such as electrical
facilities and a railway in Zimbabwe. China has taken a similar approach to Latin America where
it is investing in infrastructure projects related to natural resource extraction. Similarly, Japan,
India, South Africa and other countries of the south also engaged in recent years on economic
and political cooperation with other countries of the region.

With rapidly rising, outward-oriented development strategies, significant complementarities have

emerged, particularly between LDCs and emerging developing countries. This has created a
complementarily-competitiveness continuum. Complementarities allow individual developing
countries to identify and exploit niche comparative advantages in the production of certain goods
and the supply of specific services in regional and interregional Southern markets. New divisions

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of labour are being created across-the-board in South-South trade in agriculture, manufacturing
and services, including in the context of regional and global production and distribution chains,
and these are now self-reinforcing. This is occurring across a wide range of products, including
natural resources, intermediate goods, consumer goods, and low- and high-tech products, and
across a range of prices and levels of product differentiation and specialization.

4.4.2.2. Challenges
South-South cooperation is an important process that is vital to confront the challenges faced by
the developing countries, and is also making an increasingly important contribution to their
development. However, the LDCs face considerable challenges which militate against the
benefits of South-South cooperation. Despite rapid progress in South-South cooperation in scale,
scope and dimension, there are limitations also, as the emerging and middle income countries
themselves face huge challenges in terms of a high prevalence of poverty, malnutrition, and
unemployment, serious deficits in infrastructure and productive capacities and the impact of
external shocks. North-South cooperation remains critical in this regard. However, South-South
cooperation assumes a significant additional and value-adding role.

Second, with its considerable economic clout and an aggressive strategy of forging partnerships
in new markets, particularly in Africa and Asia, China has emerged as the de facto leader of
South-South Cooperation. This poses some interesting challenges for nations of the North,
particularly the United States who views China as a strategic rival. Unlike democracies in the
north, China has no problem cooperating and doing business with non-democratic states. For
example, China invests in Sudan, Zimbabwe and Mauritania; these are nations criticized for
human rights abuses. China's indifference to other states' domestic policies foils developed
countries' efforts to pressure such ‘rogue’ states through economic sanctions. This difference in
approach inevitably leads to diplomatic tensions between northern democracies and China.
Northern nations, accustomed to leading on the international stage, may see their priorities
counterbalanced by those of the South.

Let us conclude by emphasizing some salient issues. The first is that developing countries are
confronted with security problems. The second is that these states, especially in Africa, are weak,
particularly vulnerable to separatism and secession, because of their low degree of socio-political
cohesion. The lack of intense levels of cooperation between the government and the institutions
of weak states leads to the inefficient mobilization of resources. Without sufficient control over
their access to the population, political and economic programmes of the governments of weak
states oftentimes do not have the levels of impact that the reformers had hoped for.
Consequently, poverty, physical insecurity, corruption and inequality all come to dominate the
individual. As a result, the internal political climate of weak states usually involves violence
because there are no entrenched, established channels through which the population can express
their dissent. Among weak states, dissent that is expressed through violent behaviour is not
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typically confined to its place of origin. Violent movements within one state can spill over into
neighboring states. Opportunistic neighbors and states may be invited by such instability to
compete for the advantages that can be obtained as a result of intervention (to get their piece in
the division of the spoils). In a weak state, the government’s inability to mobilize resources and
address the needs of its constituents makes it very difficult for a state to consolidate power and to
strengthen and legitimize the institutions while making strides towards development.

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 CHAPTER FIVE

POLITICS OF DEVELOPMENT: THEORITICAL POSTULATION ON THE

POSITION/ROLE OF STATES IN NATIONAL DEVELOPMENT

5.1. Theoretical Postulations on Position of State in Development

Theoretical postulation on the evolution, nature and character of the state is crucially justified
because it throws light on the role of the state or government, by using its apparatuses, in the
capacity of generating and sustaining national development. It is therefore of great significance
to understand the various theoretical explanations that are fundamental to governments’
developmental roles in the society. In the light of the foregoing, the growing interest in the nature
and role of state therefore represents the revival of a major intellectual and theoretical concern of
the 1950s and 1960s. There are different theoretical models that provide diverse explanations on
the positions and role of state or government in national development processes. The followings
are some of the dominant theoretical models emerged in different historical periods:

5.1.1. The Command Economy Model

Most of the dependency theorists believe that an exploitative relationship between the
industrialized nations and peripheral third world countries is an inevitable outcome of world
capitalist economic system that is evident through international trade and investment. Proponents
of command economic model felt that only a socialist economy could achieve economic
independence and development in poor countries of the world. Theorists of the command
economy have viewed market capitalist economies as anarchistic because they leave the most
fundamental decisions over the allocation of resources and the determination of prices to the
whims and caprices of the forces of demand and supply or market system. With market
dysfunction, supporter of command economic model supported the centralized state plans. They
also believe in the centralized state control to overall national economy. A command economy
has two main central features; that are (i.) The means of production are primarily owned and
managed by the state that includes factories, banks, major trade and commercial institutions and
retail establishment; and (ii.) Decisions concerning production are not set by market forces but
rather by centralized state plans. Under the command economic model, government can
effectively used protectionist means to help their infant industries get started during the early
stages of industrialization. These may among others include advancement of import substitution
measures, high-tariff on imported materials, following closed-door policy, government’s heavy-
hands on economy, etc. The growth in Latin American countries’ economies was for example
essentially attributed to government, playing a key role in stimulating economic growth.
Moreover, command economic model advocates the significant of import-substitution industrial
development model and the importance of self-sufficiency rather than reliance on international
trade and export-oriented production system.

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5.1.2. Neo-Classical (Neo-Liberal) Models
Unlike the command earning model, the neo-classical or neo liberal model assigns government a
very limited economic role. The state, it argues, should provide certain fundamental public goods
such as national defense, police protection, a judicial system and an educational system. Neo
classical economists insist that free market forces should determine production decision and set
prices without government interference. They criticized government policies designed to
stimulate industrial growth such as protective tariffs and import quotes that restrict free trade and
thereby drive up prices of exports and imports; state subsidies to producers, consumers, and
governments control on prices and interest rates. All of these measures distort the choices made
by producers, consumers and government. Only when these artificial restraints are removed, will
the economy grow and development be achieved. In addition, reliance on market forces and the
adoption of market driven export-oriented development strategy was said to have led to efficient
exploitation of the comparative advantage of the countries in cheap labour (new labour
perspective) with its minimalists’ view of the state is essential to third world development.
Contemporarily, the neo liberal policies seemed to a large extent to have won over the debate
against the advocates of extensive state intervention. This model advocates the adoption of
market-oriented liberal economic principles, deregulating the private sector, removing trade
barriers and government subsidies for industries.

5.1.3. Developmental state Model

Developmental state is a new model of development adopted for the first time in the 1970s by
East Asian countries. Even though the concept of developmental state at present time mostly
associated with East Asian countries such as Japan, Taiwan, Malaysia, South Korea etc, in 17 th &
18th centuries European countries used to the have the same approach toward government role in
which government plays an active role in speeding growth and transformation of economy. It is
contrary to neo-liberal paradigm regarding the role of government in national economic system.
In conclusion, not only has the spectacular successes of the East Asian Tigers led to a re-
evaluation of the role of state in development process but it has also raised the question of
replicability of their policies and experiences in other third world countries.

Developmental State refers to a state in which enhancing economical growth and transformation
become the primary governmental agenda. To achieve these goals developmental state, contrary
to neo-liberal paradigm, intervenes and plays a leading role in guiding the direction and pace of
economic development. Developmental state is described as neither socialist nor free-market but
something of unusual combination which is characterized by the "planned-rational-capitalist
developmental state" with its intervention and rapid economic growth. This paradigm believes
that Development is a process of discovery and since every country has uniquely different
circumstances, there is no one-size-fit-all model of developmental state and policy to all

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countries. However there are general characterizations of developmental state which are basic to
all and in all circumstances.

 First of all developmental state intervenes in the economic process to facilitate growth
and transformation.

 Secondly intervention of developmental state is oriented toward less public ownership,

but more oriented towards the role of private sector in the economy and employed diverse
economical leverage of incentives such as subsidies, tax breaks, tax credits, import-export
control and promotions, targeted financial and credit policies etc.

 Third, it advocates the existence of professional and effective bureaucratic apparatus

which is exclusively adhered to developmental state ideas and goals.

 Developmental state encourages and primarily relies on private sector investment not on
public funds. Extensive dialog and cooperative engagements with private sector are
prerequisite for developmental state.

 Lastly developmental state requires a developmental paradigm by which underpinning a

social support for its vision of development; that is ensuing economic development.

5.2. Role of State in Development

The decolonization process in Africa followed with the existence of absolute poverty and poor
living condition for the masses of African citizens across the content. With political
independence the peoples of developing countries asked their leaders for a life free from poverty,
hunger and diseases. They asked for schools, and other social amenities. But it is impossible to
realize those things without substantial economic growth. Political independence had given the
newly independent Third World countries the power to unlock the door of economic and social
progress but the question is how they are going to approach it. For them, only organized and
forceful action could bring them economic freedom. In thinking about development strategies for
Third World countries, we must be able to blend the proper role of the state and market in the
economy as a decisive factor. Finding proper roles for the states in Third World countries have
become imperative because, states in the Third World today is the most demonized social
institution, vilified for its weaknesses, for its over extension, its interference with the smooth
functioning of the markets.

The dramatic ascendancy of neo-liberalism; partly as a result of the rise and political triumph of
capitalism over socialism created a formidable impetus for the need to rethink a new roles for the
states especially in Third World countries. In addition, not only has the spectacular success of the
East Asian Tigers led to re-reading and rethinking of the role of the states in the development
process, but is has also raised the question of replicability. Recent realities from developing

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countries forced scholars to reach on the general conclusion is that market failure so prominent
in development economies is still a problem that warrants government intervention and that since
such failures differs in intensity, scope and location, a selective set of interventions is required.
The most significant lesson has been the central role played by a developmental state in the
process of development. Since the mid-1990s, another shift in understanding the role of the state
in development has become perceptible arising from in large part on the recognition that there
has been a very different experiences of state led development in a number of Asian countries,
especially South East Asia that underwent rapid economic growth and a radical socio-economic
transformation, moving from being poor agrarian societies in the 1960s to producers of high
technology value added goods by the 1990s.

The 2008 World Development Report (WDR) was thus dedicated to rethinking the state role in
development and re-affirmed the position that the state is central to economic and social
development. Finding a new role for the state is predicated on the recognition of the development
success of East Asia which has led to the thinking on what states should do to accomplish
development. Their experience has shown that even market based economies require functioning
capable states in order to operate and to grow. This justifies the position of the Report of
Commission for Africa recognizing state capacity and effectiveness as a key bottleneck in
Africa’s ability to meet the Millennium Development Goals (MDGs). The effectiveness of the
state is a key and critical variable explaining why some countries succeed whereas others failed
in meeting development goals. The states in the Third World is called to intervene in order to
remove class biases in access to public services and redistribute income and probably asset from
powerful; social classes to those whose economic and political power is currently insubstantial.
Finding new roles for states in Third World countries therefore, requires meeting the basic needs
of the people which also implies lessening of the dependence of the Third World on the markets;
capital and technologies of the industrialized world; a greater potential for trade expansion
among developing countries; an improvements in their terms of trade vis-à-vis the industrialized
world; a reduced dependence on and role for Multi-National Corporations and sophisticated
technologies; a reorientation of development assistance.

A basic needs approach to development opens up the possibility of autonomous, self sustained
growth for the Third World. This strategy would thus appear to be a core potent means of
realizing the Third World demands for restructuring of the world economy than endless,
protracted strikes, violence and civil unrest. In addition, promoting development especially in the
present global economic order is as much a political as well as a technical problem. That is, the
problem is that of mobilizing the political will to undertake radical change, as well as one of
appropriate planning, resource allocation, etc. Two political prerequisites for basic needs
approach is: (i.) an effective, decentralized and democratic administrative structure to translate
policies into dreams and actions; and, (ii.) Mass participation in the development processes by

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the poverty groups. According to Ghali et al (2005) to find a proper role for a developmental
state it must possess at least two essential attributes. These are: (i) The state must have the
capacity to control a vast majority of its territory and possess a set of core capacities that will
enable it to design and deliver policies; and (ii) The project must involve some degree of reach
and inclusion and have an institutional long term perspective that transcends any specific
political figure or leader. This idea leads us to the significance of understanding the national
political system and the concept of politics of development; that is, the need to understand how
politics determine the pace of national development.

5.3. Political System & National Development

Central to politics of development is the nexuses that exist between the political system and the
pace of national development process. Political system in general provides a method for
exploring the institutional arrangements through which decisions are made; it offers ways by
which ‘drivers’ of change can be identified; and it helps to locate and map the various sources
and forces of resistance, where they have power or influence on decision-making and on policy
implementation. Moreover, the framework of political system helps to answer at least the
following questions: (1) what structure of economic, social and political relations prevails in the
national and international environment? (2) What potential agents or agencies, or drivers (and
blockers), of change has this environment generated? (3) Where are they situated in the political
structure and what power do they command? (4) What circumstances and incentives are
conducive to the formation of coalitions of such agents of change? And (5) where and how are
such agents most likely to be effective in the promotion of change? There are a number of basic
elements, or processes, that make up any political system, though the contribution and the
operation of each varies greatly between different polities, organizations and sectors. A number
of main categories define the basic elements of the ‘political system’ & how they determine the
level and pace of national development in a given country.

Reasonably speaking, all elements of political system relate to each other in a dynamic manner
and hence, historically, the politics of development has not followed a single path. Different
historical and structural contexts – economic, social, political, regional and international–have
led to different trajectories and different paces of change, driven by different kinds of agents
working through or modifying different institutional arrangements. Policies (for example to
undertake land reform, reduce import tariffs or eliminate corruption) may originate in demands,
influences and oppositions emerging from the wider society or abroad (the environment).
Alternatively, they may originate in and reflect the interests, intentions and goals of the elite, or
policy-makers (with inputs). The modes in which the demands or oppositions are expressed may
vary widely from petitions to riots (bread riots, for instance, demanding lower staple food
prices). Where they can (and they always exist, even within organizations pressing for change –
such as political parties or NGOs), gatekeepers will allow some demands and oppositions to get

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through but not others. And lobbyists, both legal and illegal and internal and external, may seek
to influence both the substance and detail of policies, plans and programmes. The final decisions
and outputs will reflect all this and the balance of power within the decision-making processes.

The political process that underpins the political system and the quality of governance may also
shape the implementation of the output. It may, for instance, be distorted by the bureaucracy,
slowed down or applied patchily, unevenly or unequally. Groups or individuals with power or
influence (within or beyond the administration) may subvert or undermine implementation. The
character – or net effect - of the implementation may well, in turn, trigger new or repeated
demands and oppositions. Throughout, the formation and expression of both political will and
the building of effective governance are not treated as separate and independent institutional
strengths or virtues. Rather, they are a direct function of how political processes work through
the political system, the nature and extent of its legitimacy and the level of support (or
withdrawal of that support), internal and external, for a government and its policies and
programmes. In a nutshell, conceptualizing and tracking political processes through the
framework provided by the idea of the political system enables one to identify and trace the
dynamics of change or resistance within and beyond it.

The central point here is that developmental outcomes are politically determined and that the
framework of the political system is a useful starting point for understanding how political
processes generate different developmental outcomes. But it has also been central to the
argument here that it is important to think of politics at two levels: the first concerns the
fundamental rules of the game (institutions) which govern and shape political life; the other
concerns the politics (games) that takes place within such rules. And it is difficult if not
impossible to understand how the latter work without first knowing the former. However, in the
context of many developing (or transitional) countries there is often no single agreed and
established set of rules but conflicting sets which pull people in different directions and structure
politics in different, often contradictory, and sometimes anti-developmental ways.
Conventionally, the ‘formal’ rules are the constitutional rules, and the standards laid down for
civil service and judicial behavior. The ‘informal’ rules are commonly those derived from
’traditional’ political and social values and practices (loosely categorized as patrimonial or neo-
patrimonial) and are often associated with relations of kin, region, ethnicity and patronage and
not with the individualism and assumption of individual rights which most formal
constitutionalism presupposes.

Different development strategic choices and outcomes therefore depend largely on the nature and
interaction of:

 The rules of the game (one or competing sets of rules; established or forming)

 The games which the rules allow

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  The relative adherence of individuals and groups to different sets of rules, and

 The compatibility and strength of such formal and informal institutional rules

 The political and developmental commitments, interests and goals of incumbent

governments or regimes

 The relative strength and dispositions of formal and informal forms of power of different
interests (internal and external).

This links to wider and contrasting points. There has been much debate about the relative merits
of democratic and non-democratic regimes as promoters of development. But the issue here is
not which is ‘better’ at it (the evidence is quite inconclusive and outcomes seem to depend more
on character and capacity of the state, not the type of regime). Rather the issue for present
purposes in relation to this discussion about the rules of the political game is that there may be a
very profound tension between the political institutions which enable and sustain stable
democratic politics, on the one hand, and the political institutions and politics which engender or
promote transformative development and change, on the other. Equally, where regimes, parties
or leaders come to power through formally agreed electoral processes and seek (or claim to seek)
to pursue strongly developmental (or pro-poor) programmes, it may well be the case that such
efforts are compromised or defeated by the power and organization of opposing interests,
informal institutions and/or external influence (a not uncommon pattern in Latin America).
Finally, there is a common assumption that the institutional rules and politics of patrimonialism
or neo-patrimonialism have strongly anti-developmental implications and consequences for
states and state institutions. And it is also widely argued (supported by some good evidence) that
polities and state institutions (whether democratic or not) underpinned by Weberian bureaucratic
rules have generated better developmental outcomes.

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 CHAPTER SIX

SOLUTIONS TO THIRD WORLD UNDERDEVELOPMENT PROBLEMS

6.1. Introduction
Dependency scholars predicated their postulation on externalization of the sources of under
development. It is important however, to point out that internal factors are also primary in as
much as we relate them to the external factors. In other words, source of underdevelopment are
only partially explained by external factors. There are some internal forces and productive
structure that may prohibits the development of the productive forces. As such we have mistaken
historical explanation for historical justification for the persistent crisis of development but
available evidences have shown that internal factors have contributed tremendously to the crisis
of development in third world countries. It is therefore important to note that we will have a
better explanation if we look at the internal factors as agents as it were who became further
catalyst to further underdevelopment.

According to Tam David West (2003) the reason for the difference between us and the
developed countries is that while the leaders are literally with every ticking off the clock
seriously addressing the problem and concerns of the moment and finding solutions to them, in
underdeveloped countries especially Africa, leaders expend their energies more in devising more
and more sophisticated machinery for subverting the system, economically or electorally. They
loot and subvert the system for their own self-aggrandizement and indulgence. Scholars across
the world observed that by far the greatest singular contributor to Africa’s continued
underdevelopment is bad leadership. Most African leaders who claim themselves as a visionary
but in fact have no vision at all for development which in most cases becomes the root for
African underdevelopment. Internal factors therefore play critical role to distort the processes of
development. For example, values, leadership, discipline, corruption, the possibility of cultural
resistance as well as the right of a tribal society to reject or accept change and innovations, as
this diffused into the TWCs constitute these internal obstacles that can ruin the process of
development.

It is therefore important to point out here that internal factors are also primary in as much as we
relate them to that external factors. As such, beyond the postulation of dependency scholars,
internal factors also provide vintage to understanding the underdevelopment and dependency of
the third world countries. Such factors are essentially the lack of social and economic integration
and the dual distorted socio economic structure. The existence of a disintegrated dual structure
refers to the historical root of underdevelopment as explained from the external environment. In
a nutshell, it can be posited that the internal structure of the underdeveloped countries is not only
a product of the penetration of external and internal forces but that once this has become
established, it provides the basis for maintaining such relations. In order words, source of

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underdevelopment and dependency are only partially explained by external factors, internal
factors provided the catalyst for its success.

6.2. Solutions to TWCs Underdevelopment

So far you would reasonably able to understand the basic problems and sources of
underdevelopment of the Third World Countries and Africa in particular. The relevant question
is obvious: is there no way out for the Third World to develop? Or put differently: is there no
hope for the Third World Countries? Of course, there is, which is the basis for this course and in
essence this unit. The focus here is to x-ray possible policy strategies and measures capable of
providing the much needed panacea for the syndrome of underdevelopment. The solutions to
Third World under-development include cultural re-orientation, good governance, economic
diversification and restructuring, zero tolerance for corruption as well as inter-regional co-
operation in the economic sphere. These and other measures when implemented can generate
positive indices of economic growth and development. The following section tries to highlight
on these strategies in some details.

A). Cultural Re-Orientation

Culture is conventionally seen as the total way of life of the people. Tylor (1871) in his classic:
“Primitive Culture” defines culture as that complex whole which include knowledge, belief, art,
morals, laws, customs and any other capabilities acquired by a man as a member of society. It is
generally transferred from generation to generation through symbolic representation and
communication and which involves the fabrication and interpretation of symbols in most cases
through audio-visual media like words, pictures, discussion and writings. Culture can be said to
have three levels; tangible, values and assumptions – tangible – aspect that can be seen, touched
and felt; values – the beliefs, taboos, ethics and rules; assumptions – perception of reality which
may true or false. The Global capitalism works on cultural imperialism overtime. This is a
system of making the culture and taste of the indigenous people to look inferior to the
imperialist. In the Third World, colonial administrators, Christian Missionaries as well as
Anthropologists were the main instruments of changing the ways of the indigenous people and
enthronement of the Western culture which in essence was to create the desire for food, clothing,
education, religion and other aspect of western culture. The creation of this desire transformed
into the demand for western products which empirically is the backbone for the expansion of
markets for the finished products of these countries; and indeed the basis for the lopsided trade
relationship between the North and the South; and the fabrication of Dependency syndrome.

The fallout of this is the internationalization of Western Culture, as Africans and other
indigenous values were trampled upon as irrelevant, unprogressive, backward primitive,
conservation, traditional and unscientific; compared to the assumed modern, civilized dynamic
and scientific values of the Europeans and her allies. This was concretized by the western
education which further indoctrinates Africans and other Third World Nations to the point of
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unquestionable preference for the Western culture as evidence in the adoption of
Jewish/European names, religions, languages and the craze for western music, dances, dresses,
housing, household appliances as well as diet. The sum total of these is that the Third World
countries consume much of what they do not produce and produce much of what they do not
consume leading to perpetual unfavorable balance of Trade and Payment; an essential index of
underdevelopment. The situation is more pathetic in this era of globalization when information
and Communication Technology has eliminated the national boundaries which would have
reduced the domination of the local values by the predatory western values through internet,
satellite television and radio.

Given the negative tendency of this historical reality, there is therefore urgent need for cultural
reorientation of the Third World countries. Indigenous crafts, art industries, cloths, music, dances
and diets are not inferiors as they are made to be seen. This can be done by evolving a national
ideology which generates national consciousness and enhances national cohesion and
integration. Again, the much celebrated Chinese success based on the adoption of communist
ideology which was more appealing to the peasant, galvanizing the citizenry into the collective
action against the pro-liberal nationalist and the eventual establishment of a communist state
obsessed by autarky and opened to gradual reforms and adaptation to the dynamics of
international system. The outcome is the amazing transformation of her economy. One must also
note that, at a critical point of these countries history, cultural revolution was instituted which
remains ongoing, thus checking the influx of foreign ideas and culture which might contaminate
the fabric of the societies and open them to capitalist exploitation and antics.

B). Good Governance

The ideas of Good Governance exist in the ethical concept of utilitarianism, promotion of
general good above personal and primordial interest. As a concept, it gains currency of recent
majority to differentiate existence of governance for its sake and people oriented governance. It
is defined as “predictable, open and enlightened public policy, a bureaucracy imbued with
professional ethos, rule of law, transparent processes and a strong civil society” (World Bank
Report, 2007). Eneanya (2009) succinctly refers to it as “the ability of those in leadership
positions to manage a nation’s affairs in a popularly acceptable manner by shaping its political,
economic and social environment to meet the standards set by the society”. This readily turns the
light on the leadership and in our study, Third World leadership. Most of the policies and
programmes of Third World leaders are directed by forces from without due to neo-colonial
structures of their political economy. The product is the inability of these polices to benefit the
citizenry which necessitates for change to people-oriented and directed policy devoid of personal
gains of the leaders. It is the elimination of primordial interest in policy formulation as
implementation, as well as the ceasation of Clientelism, Personalism and patrimonialism in Third
World governance, a veritable factor in efficiency, wastage and mediocrity in state management
of resources and affairs.
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Good governance makes a state an autonomous body capable of mediating in group interest
impartially, upholding public good and interest. Thus when instituted and practiced, enormous
resources would be saved from corruption and mediocrity; can be channel into infrastructure
renewal and other public goods. This will also ensure that the processes of obtaining loans from
the development partners are transparent enough for the citizenry to understand and monitor the
implementation of project for which such loans were meant for, so also would government
budgeting, income and expenditure. When these are achieved it would attract investors who are
sure of the investment climate and rules governing such investment. Eneanya (Ibid) identifies the
following elements of good governance:
o Imposition of order in a situation of chaos and pervasive orderliness;
o Constitutional legitimating of ruler-ship in contradiction to extra-constitutional
legitimating;
o Internalization of democratic values and inclusiveness in all spheres of political
interaction;
o Improvement commitment to the common good through the adherence of political
authority to the democratic principles of responsiveness, responsibility, transparency and
accountability;
o Giving of primacy to the rule of law and constitutionalism;
o Political empowerment of the masses, by giving them a voice and making them
stakeholders in governmental affairs;
o Vertical and horizontal communication and flow of information between the government
and the citizens;
o Bottom-up developmental agenda;
o Zero tolerance for corruption through demonstration of political will and genuine
commitment by government to detection and punishment of offenders;
o Systematized, functioning and responsive bureaucracy. The public servant must not
assume the toga of mastership over the public;
o Genuine, co-operative and collaborative state – civil society interactions and
o The institutionalization of a democratic order.

Despite the highlighted elements above; it must be noted that good governance is based on
environmental factors and are varied. For instance, Americans and Chinese can claim to have
achieved it irrespective of the variation in the political system and structure, but the most
important element is the promotion of public interest above that of individuals and groups.

C). Diversification of the Economy

It is a common knowledge as highlighted in the course that one of the major causes of third
world underdevelopment is their position in the world economic structure as states in the
periphery that specialize in the production of primary and extractive products without value

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added capacity. This mono-culture explained in terms of comparative advantage and general
poor price of these products means that lesser revenue accrue to these states; compounded by the
gang–up of the major buyers from the west; legitimized dependency and its contradictions. The
solution lies in the diversification of the economy from mono-to multiproduct. This is quite
different from the import substitution industries (ISI) strategies championed by most of the Third
World in the Post-independence era, such as Latin American and some African countries
established soap and confectionary outfits.

If we take Indian context as example, a country started up with highly controlled but diversified
economy into chemicals, pharmaceutical, steel and metal which culminated into the production
of Indian cars as early as in 1960s. the gradual liberalization of the economy provided the much
needed window for technology transfer into these sector which eventually transformed the
economy to the second fastest growing in the world (behind China); assisted by springing up of
IT specialists and entrepreneurs from the established institutions of Technology. The same can
be said of the Chinese Economy which is highly diversified due to the autarky policy of Mao’s
era. The much talked about powerhouse of Latin America, Brazil also reflects this. It is only a
diversified economy that can attract diverse investors and transfer of technology which gradually
filters through employment of indigenous engineers and technicians, thus adding values to the
primary products and enhance foreign exchange earning of the economy. The era of rhetorical
commitment to the policy should be done without an actual implementation of commerce with
vigour. Moreover, besides the restructuring of the Economies to export-oriented strategy is
desirable. Brazilian economy has improved through the export of automobiles assembled at
different destinations of the country, so also is the export of Tata vehicles, pharmaceutical,
chemicals and other products from India. China from inception of the communist government
acknowledged state capitalism in export of grains which was a paradox to her ideology as
practiced by the then Soviet Union. Thus her emergence as export machine is a product of a long
term vision of export oriented economy which has made her what she is today. Therefore trade,
especially export is a better strategy than aid and grant as currently practiced by many Third
World countries as there is no free lunch anywhere in the world.

D). Zero Tolerance for Corruption

In the course of this study, we have identified corruption as the major cankerworm in the Third
World Countries. This has resulted in the enormous wastage of resources, capital flight and brain
drain which further impoverished these economies. Given the overbearing impact of this
cancerous practice, a holistic and drastic measure has to be taken in order to stop the menace.
The establishment of Economic and Financial Commission (EFCC) and the Independence
Corrupt Practice Commission (ICPC) in Nigeria was expected to achieve this feat but has failed
woefully due to the non-autonomous nature of the Nigerian state. For such measure to be
effective, the state must be autonomous and empower institutions set-up to fight corruption with

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all necessary backing. Hong Kong and Singapore undertook such measures and the system was
cleansed. The prescribed sentence for corruption should be capital punishment which would
serve as deterrence, compared to the present plea bargaining and prison terms which give the
looters the opportunity to enjoy their loots. Indonesia Malaysia and other countries took similar
measures against drug offences which have curtailed the menace in these countries; the same
token therefore should be applied to corruption. Besides, more effective would be mechanism for
early signal detection to nip its occurrence in the bud. The timing of investigation and
adjudication should be short and effective so as to reduce loss of evidence as experienced in
Nigeria. The judicial system should also be strengthened and relieved of corrupt elements who
undermine justice for personal gains. Chinese anti-corruption regime may be a model for other
Third World Countries.

E). South–South Co-operation

The countries of the south in the global economy have numerical strength which can be
effectively harnessed to their advantage but are weakened by socio-political and historical
challenges. The G7 and Bretton Woods Institutions serve the interest of the industrialized nations
but there is no such arrangement in the south. The Non-Aligned Movement is almost irrelevant
in the post-cold war era; the D77 is just a talk shop, without a binding resolution. Amazingly too,
trade between the developing countries are too low, even between neighboring African countries
are almost non-existent which reduces solidarity in adopting common position on Trade and
investment issues at global arena. The success of Organization of Petroleum Exporting Countries
(OPEC) in reducing the exploitation of Third World Oil Wealth should serve as impetus for such
cooperation. Besides, technologies are filtering into different countries in the south which can be
shared or transferred. Relating to this is the collaboration in Research and Development which
would generate innovation and sharpen the technical skills of Third World personnel. These
would stimulate further learning. If need be, technology can be bought or stolen depending on
the level of cooperation between the countries of the south. The net effect of these would be
improved capacity and innovation in the production of goods and services capable of meeting
global standard; and the domestic utilization of the available resources in production processes,
thereby adding values, leading high earning from these products.

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