CHAPTER 11
THE DEVELOPMENT CONUNDRUM: CHOICES AMIDST CONSTRAINTS
Overview:
A pervasive problem of the international political economy is the tension between the industrialized
countries of the North and the less developed countries (LDCs) of the South. A major source of that tension is the
“development dilemma.” For much of the twentieth century, the overwhelming majority of the world’s population
who live in developing nations have not experienced the kind of economic prosperity that the vast majority of
people in developed countries have. An obvious question is: given the great amount of wealth produced in the world
each year, why have so many less developed countries remained impoverished, “underdeveloped,” or
“undeveloped”? The issue of development has confronted most of the LDCs since the middle of the twentieth
century, when many of them formally became independent nations.
There are many theories about the causes of underdevelopment and how to remedy it. This chapter
examines some of those theories and explores other aspects of the development dilemma. It provides a brief
overview of the economic, political, and social disparities that distinguish the developed nations from the newly
developing and the less developed nations. Discussion turns to the origin of these gaps—the historical context and
situations that resulted in the depressed circumstances that many LDCs find themselves in. Also examined are the
ways that LDCs use international organizations and nongovernmental organizations (NGOs) as mechanisms to
change some of the institutions and processes of the international political economy.
While economic development does not appear to be forthcoming for many developing nations for a variety
of reasons, the Newly Industrialized Countries (NICs) are the success stories of development in the postwar era.
This chapter also explores the factors that account for the success of some of the NICs and some key obstacles for
the LDCs in Africa. Of note is the effort by people like Jeffrey Sachs, in conjunction with United Nations agencies,
to help eradicate the debt of many of the world’s poorest nations.
Learning Objectives:
• To describe conditions associated with the development conundrum and under development.
• To discuss the four factors that conditioned the attitudes and behaviors of LDCs toward economic development
in the 1950s and 1960s.
• To define neocolonialism and discuss the impact of colonialism on efforts to develop.
• To discuss the role of UNCTAD and other international agencies in the development process.
• To explain the NIEO proposals and to discuss why they were relatively unsuccessful in reforming the
international political economy.
• To discuss what political and economic factors have come to be associated with successful economic growth
experiences in LDCs, and why some countries in Southeast Asia have been more successful than others.
• To compare and contrast four different development strategies based on variations of the three dominant IPE
perspectives.
• To explain the concept of dependency and discuss its relationship to development problems.
• To explain the impact globalization has had on the development process.
• To discuss the role of informal economies and, in particular, Grameen Bank’s microcredit programs, in the
development process.
• To discuss the importance of improved public health for successful development.
• To explain some of the efforts by NGOs and IOs (especially via the Millennium Development Goals) to
eradicate debt in very poor countries.
Chapter Outline:
Introduction: The Development Conundrum
a) This chapter provides a systemic overview of the development process: the common attributes of
developing nations, their emergence into the international system, various development strategies, and the
benefits and drawbacks of globalization.
b) We examine development strategies associated with economic liberals, mercantilists, and structuralists. We
argue that the strategy of self-reliance combines elements of different perspectives and applies them on a
case-by-case basis.
c) Development promises an improved standard of living, longer life, and greater status, but it often has a
harsh side, raising concerns about the costs and paths associated with this dream.
WHAT ARE DEVELOPING NATIONS?
a) While developing (Third World) nations have diverse histories, cultures, economies, and political systems,
they share certain characteristics, including high poverty rates, lack of access to education and health care,
hunger, and dependence on foreign aid.
b) Almost half of the population in developing nations lives on less than $2 per day, and hundreds of millions
try to survive on $1.25 or less per day. In comparison, per capita income in the United States is around
$115 per day.
c) $1.25 a day is a critical point in discussing real poverty, as less means inadequate diet, high infant
mortality, and shortened life span. About one-fourth of the population in LDCs earns less than the
equivalent of $1.25 per day.
Independence and Underdevelopment
a) In the mid-twentieth century, the colonial empires disintegrated and new states emerged into an
international system defined by the Cold War between the United States and the USSR.
b) Development—characterized by a growing and prosperous economy—was crucial in order to establish a
national identity and ensure political stability. However, many LDCs feared further exploitation,
manipulation, and continued subjugation by their former colonial powers.
c) Because many LDCs approached development both as a response to colonialism and as a resistance to
cultural domination by the West, they advocated caution before adopting a Western outlook on it.
d) Proximity to the United States or historical connections to former mother countries often shaped the
political and economic development strategies LDCs chose.
e) The economic success of the developed countries provided a strong rationale for some LDCs to follow in
their footsteps, or at least to adopt market-oriented prescriptions for economic development.
LDCs Mobilizing to Develop
a) The 1955 Afro-Asian Bandung Conference in Indonesia generated the Non-Aligned Movement in 1961 and
was the first step to forging a Southern identity and promoting the interests of LDCs.
b) Many experts argued that LDCs were trapped in a capitalist international economic system dominated by
institutions and mechanisms that favored the developed countries.
c) Dependency theorists suggested that the international division of labor left little room for LDCs to develop,
as they depended on developed nations to purchase their raw materials as well as to provide capital and
technology.
UNCTAD and the NIEO: LDCS Organize to Change the System
a) Frustrated by their meager success, many LDCs acted cooperatively within international organizations in
an effort to change the structures of the international political economy.
b) The United Nations Conference on Trade and Development (UNCTAD) was established in 1964, and its 77
members (the G-77) were gradually able to secure preferential treatment for their exports to developed
nations.
c) The Organization of Petroleum Exporting Countries (OPEC) helped bring attention to LDCs’ concerns in
1973 when it embargoed oil shipments to some of the industrialized nations.
d) At the UN General Assembly in 1974, LDCs called for the establishment of a New International Economic
Order (NIEO) to accelerate the pace of development among LDCs and rectify the economic imbalance
between the LDCs and the industrialized nations. LDCs wanted to elevate the issue of economic
development to the top of the international agenda.
The Market Unleashed
a) Conservative administrations in the 1980s influenced international financial institutions, which
implemented Structural Adjustment Policies (SAPs) requiring LDCs to adopt stringent economic policies
in order to ensure continued IMF assistance in addressing their short-term economic woes.
b) In the 1990s, the fall of the Soviet Union and the rise of globalization gave more credence to liberal market
ideology (the Washington Consensus), which emphasized privatization, free trade, and capital mobility.
c) LDCs began to demand more access to rich–country markets, both for manufactured goods and agricultural
products.
The Burden of Long-Term Debt
a) By the 1990s, many poor countries, especially forty of the world’s heavily indebted poor countries
(HIPCs)—primarily in Africa—found themselves saddled with long-term debt due to borrowing from the
World Bank, the IMF, and some international banks. Some of these states complained about odious debt,
or obligations to outside agencies incurred by a former corrupt regime.
b) In 1996, after pressure from popular movements in both the North and South, creditors launched the HIPC
Initiative under the direction of the World Bank. The goal was cancellation of the debt of the world’s
poorest countries.
How to Develop: The IPE Development Strategies
a) Development strategies are hotly debated. This section describes and compares four distinct IPE
development strategies. Table 11-2 sums them up.
The Economic Liberal Perspective
a) The economic liberal perspective on development requires that LDCs become integrated into the global
market economy, especially through trade. By emphasizing their comparative trading advantages, LDCs are
able to capitalize on the benefits of international trade and build a robust economy.
b) From the liberal perspective, MNCs are a major source of capital, jobs, and technology. Foreign aid from
wealthier nations and IOs is also critical to strengthening the poorer nations. Some critics have argued that
as developing countries compete for FDI, they essentially undercut each other by trying to provide foreign
investors with the most lucrative terms in the form of very cheap labor and lax regulation. This generates a
“race to the bottom.”
c) Theodore Moran discusses various strategies to improve working conditions in LDCs, such as adopting
global labor standards and integrating sweatshop concerns into WTO agreements. He argues that a passive
strategy that counts on sweatshop earnings to “trickle down” and eventually create more growth is
wrongheaded.
d) The economic liberal outlook incorporates Western strategies and assumes that the relationship of rich to
poor countries is mutually beneficial.
e) According to W. W. Rostow, LDCs must undergo a series of changes in their socioeconomic system in
order to develop. These “evolutionary” changes are represented by a series of “stages of (economic)
growth” that each society passes through on its way to development. Rostow’s theory is largely based on
the historical trajectory of Western nations.
f) The economic liberal development strategy prioritizes open markets and free trade, and hence places a
premium on the need for LDCs to adopt export-oriented growth policies based on their natural comparative
advantages.
The Structuralist Perspective
a) For Marxist–Structuralists, trade, aid, and FDI often result in dual economies, with the wealthy elite
receiving most of the benefits while wider societal development does not occur.
b) During the Cold War, pro-Soviet communist models of development called for closing economies to
international trade, nationalizing industries, implementing import-substitution policies, rejecting
international aid, and creating a more equitable distribution of wealth.
c) Many Latin American states opted for the strategy of import substitution, meant to reduce dependence on
foreign capital, technology, and markets while promoting local industry.
d) East Asian countries such as Taiwan and South Korea adopted ISI, but they did not have the resource– and
agriculture-rich base that Latin American economies did. East Asian NICs moved into export-oriented
growth and reduced inequality.
The Mercantilist Perspective
a) Mercantilists consider international trade essential and strategic to national development and believe that
states have a critical role to play in coordinating a trade strategy that is conducive to economic
development.
b) Export-oriented growth, based on a combination of mercantilist and liberal strategies, calls for the state to
strongly emphasize (or create) a country’s comparative advantage in selected sectors of the economy and to
promote exports from these sectors.
c) Many East Asian NICs adopted some form of export-oriented growth, with government policies that
included protecting infant industries, providing finance to manufacturers, promoting the export of
domestically manufactured goods, encouraging savings and investment, and investing heavily in education
and vocational training.
Self-Reliance
a) Self-Reliance combines elements from all three perspectives, taking into consideration the unique
circumstances, economic challenges, and resources of each country when considering the combination of
strategies that may be appropriate.
Box: Development: A Customizable Approach
a) This box covers a published debate between Martin Wolf of the Financial Times and Ha-Joon Chang, an
economics professor at Cambridge University.
b) Chang is critical of liberals like Wolf who criticize LDCs for employing protectionist policies to enhance
their economic development. Chang supports the temporary use of protectionism for the sake of “catching
up” with the industrial developed nations, as they themselves did earlier in their histories.
c) Wolf responds that he supports some protectionist measures but would like to see more effort on the part of
many inward-looking developing nations to benefit from doing more to compete with other states in the
international economy, as South Korea did on a selective basis.
d) There is no “magic bullet” to make any one strategy or combination of strategies work. Free trade and
economic liberal ideas alone are not the solution to the problem.
THE EAST ASIAN MIRACLE AND FINANCIAL CRISIS
a) By the early 1990s, the evidence seemed to favor an export-oriented strategy over import substitution,
based on the dynamic growth experience of the East Asian NICs. In contrast, the strategy of borrowing
abroad to build domestic industry created huge foreign debt and devastating debt crises in Latin America.
b) Many East Asian scholars believed that their state policies were the key to their success. They pointed out
that many of the positive factors in Asian economic development, such as high savings rates, strong
education systems, and relative income inequality, were dictated by state actions. In other words, the East
Asian economic development was very much the result of carefully crafted mercantilist policies.
c) The Asian financial crisis was created by a combination of market imperfections, business-government
relations that sometimes encouraged financial abuse, and the lack of effective regulation and social safety
nets.
DEVELOPMENT AND GLOBALIZATION
a) The development dilemma is more than choosing the right strategy but how to deal with policy choices and
critical details.
The Informal Economy, Microcredit and the Mystery of Capital
a) The informal economy is the part of the economic system that operates outside of direct government
control or regulation. It is often an important part of the LDC economy and a source of opportunity for
grass roots entrepreneurship.
b) Many of the poor have access to capital, in the form of property or land, but they do not own the capital. In
order for capitalism to work in LDCs, the poor must have rights to the capital they already use.
c) Macro-credit from the IMF or World Bank assumes that economies can grow from the top-down, with
economic benefits from large-scale development projects eventually reaching the poor.
d) Microfinance seeks to provide credit to people to start their own small businesses, thus enabling the poor to
lift themselves from poverty through their own initiative. When they repay their loans, this enables others
to access such funds, too. The most famous microcredit institution is the Grameen Bank, which was
founded in Bangladesh by Professor Muhammad Yunus in 1976.
e) Microcredit is successful because it solves the economic problem of asymmetric information. Lenders
must trust the borrower to repay the loan or they will impose high interest rates, which have the unintended
effect of discouraging all investment. Micro-credit agencies lend to groups, in which each member is
individually responsible for the loan, placing the burden on group members rather than the lender.
f) Although microcredit institutions often begin with an agenda for socioeconomic change, critics argue that
the need to be financially sustainable—to earn interest and achieve high loan repayment rates—sometimes
alters these priorities. There is also a concern that microcredit institutions, if successful, may introduce
capitalist practices and values into indigenous societies.
Development in the New Millennium
a) Despite years of debates about competing models and strategies, the persistence of poverty remains critical
and endemic in many parts of the world.
b) Many in LDCs do not have access to healthcare and continue to suffer from contagious diseases that have
all but been eliminated in the developed world. AIDS remains prevalent in sub-Saharan Africa, where the
lack of resources for prevention, treatment, and education is part of the problem.
c) The Millennium Development Goals were launched in 2005 to refocus the international community to
address the economic and humanitarian conditions in the world’s poorest nations.
d) Since 2000, the IMF, the World Bank, and the developed nations have responded to the goal of debt relief
espoused by the likes of Jeffrey Sachs. Obtaining debt relief grew easier as World Bank policy shifted from
support for neoliberal “one size fits all” policies to more of a grab-bag approach to development. A 2009
UN report on the impact of the global financial crisis suggests that the international community was
“making notable progress on reducing the external debt burden of developing countries.”
CONCLUSION
a) A variety of different strategies have resulted in some success in economic development, especially for the
Asian NICs. However, the search for a single solution to the development problems of many countries has
given way to a growing realization that currently there is no one full-proof strategy for all developing
nations, nor might there ever be one.
Key Terms:
• The United Nations Conference on Trade and Development (UNCTAD)
• New International Economic Order (NIEO)
• Heavily indebted poor countries (HIPCs)
• Odious debt
• HIPC Initiative
• Import-substituting industrialization (ISI)
• Export-oriented growth
• Informal economy
• Microcredit
• Grameen Bank
• Asymmetric information
Teaching Tips:
• In addition to learning the key terms listed above, students should also understand the terms Millennium
Development Goals, OPEC, Structural Adjustment Policies, “race to the bottom,” Third World, and Global
South.
• Start by focusing on the plight of LDCs and the debate surrounding why some developing nations like the NICs
seem to have been successful while others have such a hard time developing. There is much fruitful discussion
revolving around a comparison of differences in conditions and policies in East Asia, Latin America, and
Africa.
• Ask students why, in the face of some success by the Asian NICs, dependency theory remains a powerful tool
in explaining the lack of success for some countries?
• Ask students to wrestle with the issue of how much state involvement or activism is necessary if nations are
going to develop. Have them tie their responses to the different IPE outlooks of mercantilism, economic
liberalism, and structuralism—and to the four IPE development strategies associated with these perspectives.
• Many questions involving LDC development stem from their frequent status as TNC host countries. Note that
these issues are dealt with in some depth in Chapter 17. You might ask students to consider evidence that TNCs
do not cause a “race to the bottom.” Pietra Rivoli’s book Travels of a T-Shirt in the Global Economy is a good
resource for this discussion.
• Have student outline the Millennium Development Goals and search for current assessments of how well
countries are meeting these goals. You could have small groups of students research one of the eight goals.
• Have students discuss the relationship between these specific efforts and those by the IMF and World Bank
when it comes to development.
• Finally, have students discuss the extent to which microcredit agencies like the Grameen Bank have been
effective. What specific features of the Grameen Bank have led to its success? You might want to ask students
about other forms of “social entrepreneurship” that they think provide some solutions for poor countries.
Sample Essay-Discussion Questions:
1. Define and explain what is meant by the “development conundrum.” What factors have acted as barriers to
development and which have contributed to the ability of some LDCs to overcome these barriers?
2. Explain how these forces create tensions within LDCs and between LDCs and industrial nations? Explain.
3. Outline the major elements of the four IPE development theories and discuss the extent to which some of them
have been more successful than others.
4. Outline the major features of dependency theory and Frank’s development of underdevelopment thesis.
5. Discuss the NIEO movement. What specific proposals did it include? Explain why this movement was not more
successful. Do you think the movement would have a better chance of success today?
6. Outline and explain some of the efforts by NGOs and IOs such as the Millennium Development Goals and the
Grameen Bank to eradicate debt in very poor countries. Include a discussion of why some agencies and
institutions have been more effective than others.
7. Some authors, like Oswaldo de Rivero, claim that development is a myth, something most countries cannot
attain. Have students discuss the potential impossibility for most countries to attain significantly higher
standards of living, given climate change and constraints on water, resources, land, and energy.
Sample Examination Questions:
1. Which region of the world has the highest proportion of its population living on less than $2 a day?
d) East Asia and the Pacific.
2. Per capita income in the United States averages about
a) $1.25 a day.
3. Which of the following was NOT an important factor in shaping the development dilemma for LDCs?
d) fear of political domination by the West
4. Which of the following items is NOT considered by dependency theorists to exploit LDCs and worsen their
chances for development?
a) foreign aid
5. Who spearheaded the creation of UNCTAD?
a) the Soviet Union
6. Which of the following is NOT a feature of the NIEO?
a) adoption of free-trade policies
8. The economic liberal model of economic development
d) promotes laissez-faire, import-substituting growth policies.
9. The Washington Consensus is synonymous with
d) the U.S. State department’s outlook about development.
10. What is an important criticism of microcredit institutions?
d) They are run top-down, not bottom-up.
11. On which point do Martin Wolf and Ha-Joon Chang agree?
d) Countries that use protectionist policies will have slow growth.
12. In contrast to the other three major development strategies—the Economic Liberal, Mercantilist, and
Structuralist models, Self-Reliance puts more emphasis on what than the others?
a) free market ideas and policies
13. According to the structuralist model of development, the Western industrial model of development is
inappropriate for LDCs because of its _____ connections to the South via trade, aid, and FDI that produces dual
economies.
d) financial
14. Whose name is most associated with efforts to apply the principles of the Grameen Bank to women in
d) Bill Gates Jr.
15. When it comes to development and poverty, this expert is noted for his ideas about a “clinical” approach to
development and his recommendation that the debt of many poorer developing nations be cancelled. He was
also Director of the UN’s Millennium Development Goals.
a) Muhammad Yunus