Appendix: Development Theory


Clarifying “development” is necessary to analyze the SEZ development tool, but the task is not simple as wildly divergent theories span more than 50 years.  No theory is perfect and each has associated policy recommendations that have merit.  Even the oldest ideas about development are relevant because the imprinted influence may be seen on SEZ projects in construction today.

Macroeconomics ignited the discourse of economic development and the conduit is industrialization.  The theory of modernization embraced the goal of global industrialization and believed it to be a necessary catalyst for democratization. Some modernization theorists believe that cultural change comes first, leading to industrialization and then democracy occurs on an individual level.  Whether industrialization or cultural change comes first, it was believed that modernization is inevitable in all countries if given enough time.  This belief is based on a story of Western history that reveals the ethnocentricity of Western culture.

Alex Inkles defined the 1960s modern man as educated, scientific, innovative, dominant of his environment and believes in distributive justice (Inkles, 1966).  Huntington, a critic of modernization, demonstrated that industrialization does not equal democratization stating the primary problem to be the lag in institutions behind social and economic change.  As we see in SEZs, Huntington argued that rapid development leads to new channels to dissipate change. As a result, social participation becomes unruly and disorderly.  He also offered a revelation related to the Kuznet’s U Curve theory, an empirical representation of inequality occurring in early development stages that is corrected through trickle down economics, finding it to be inherently destabilizing.  Furthermore, Huntington claimed that trickle down economics does not correct disparity (Huntington, 1968).

Modernization is characterized by a one-size-fits-all policy agenda referred to as monoeconomics.  It holds that there are certain economic theorems and policies that can be applied universally.  Modernization theory is now considered anachronistic, but monoeconomics has proven to be ageless.  One example is the universal belief that in a market economy all participants benefit from their financial interactions with each other. In this sense, monoeconomics leads to the assertion of a mutual-benefits claim that is a primary tenet of orthodox economic approaches. Critics of monoeconomics reject the mutual-benefits claim and cite its contribution to the “vicious circle of poverty,” a state of low-level equilibrium which can prevail under conditions of widespread underemployment (Hirschman, 1981).  The most basic argument asserts that if the conditions of developing nations are not generic then neither should their policies be.

Challenging both modernization theory and monoeconomics is development economics (not to be confused with economic development), based on insight to the economic challenges facing LDCs.  Chaudhry argued that development is historically contextualized, and later industrializing nations have different and more expensive hurdles to overcome (Chaudhry, 1993). Taking this idea further, Gerschenkron asserted that the state, therefore, has a greater role to play in providing support for entrepreneurs. He stresses the necessity to overcome “economic backwardness,” the condition of undeveloped countries that lack the capital necessary to generate industrialization and participate in global markets (Gerschenkron, 1966).  Development economics supported the macroeconomic fiscal and monetary policy combination of John Keynes.  But the quantitative approach of growth economics evolved independently from development economics as a direct offshoot of the Keynesian system.  It favored central banking monetary policy as it reduced fiscal interventions.

Distinct from other views of development are those who believe that development is just not possible.  They are the dependency theorists.  Using the language of Wallerstein’s world systems theory, they describe the inescapable power of the hegemony determined to exploit the factors of production in the periphery, as it always has.  “Historical research demonstrates that contemporary underdevelopment is in large part the historical product of past and continuing economic and other relations between the satellite underdeveloped in the now developed metropolitan countries” (Gunder Frank, 1966).  Peter Evans explicates this power as the “triple alliance.” Cooperation among multinational corporations (MNC), the state and local industry executives create the necessary condition for dependent capitalist development (Evans, 1979).

If the power trio were to eliminate the state and become a power duo we start our discussion on neoliberalism.  Neoliberals believe the market is the vehicle for development and requires the governments to be uninvolved. They promote pro-business policy believing entrepreneurs are the vanguard of growth, and economic growth will “spillover” into social and political realms.  Neoliberals say that the state isn’t capable of making market decisions because of its divergent agenda; and entrepreneurs are more in tune with the affairs of the market.  They therefore promote policy that eliminates the state’s ability to regulate markets. “Neoliberal principles, it is argued, have been woven into the fabric of a broad range of policy programs at the same time as they have subordinated non-market political and cultural forces to the broader requirements of capital accumulation” (Raco, p.328).  Neoliberalism is a return to monoeconomics.

The competing policy agenda is development-led globalization (DLG), a term currently used by the United Nations Conference on Trade and Development (UNCTAD).  DLG describes the principles, priorities and policies that need to be pursued for an inclusive and sustainable future.  The three objectives of modern development are identified as: 1) to increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health, and protection. 2) To raise levels of living that include, higher incomes, more jobs, better education, and greater attention to cultural and human values to enhance material well-being and esteem. 3) To span the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence not only in relation to other people and nation-states but also to the forces of ignorance and human misery (Todaro, p.22).  The modern language in these expansive goals reflects the ideals of Nobel Prize economist, Amartya Sen.

Sen has stressed the importance of social capital (i.e. education and healthcare) in development and influenced the latest development policy buzzword, “capacity building.”  Capacity building policies are designed to help those in developing countries by increasing their awareness and ability to take advantage of opportunities (Sen, 1999). What a person does or can do with commodities they come to possess is the capabilities approach to development.

These humanitarian goals are inspiring—and I suspect that they are actually aspiring.  The evolution of the international economy to a global marketplace has increased the challenge of the goals identified above.  The persistent pursuit of rapid economic growth has exacerbated social and environmental issues.  Capitalism has called for more open markets at the sacrifice of any impediment.  Financial institutions such as the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO) facilitate the spread of capitalism. Wade argues that the WTO, created in 1995, has shrunk the space for development and “kicked away the latter” (2003).  The WTO is an active policy maker with a current membership of 148 nations. It has provided a comprehensive framework for trade but does not address issues related to FDI, the environment or social welfare.  It has system of weighted voting of members that is based on economic and political strength.  At 17%, the US has the strength to veto new policy it doesn’t support, or push through the policies it does such—such as open door trading.  The General Agreement on Trade in Services (GATS) provides for a liberalization of trade in services making specific provisions on developing countries, a.k.a. the enabling clause.  The clause is intended to offer ‘protection’ for developing countries but it mostly offers the legal precedent for regional trade agreements among LDCs.

The argument for liberalization (free trade) centers on the goods of the market adhering to the credo of competition, growth and efficiency. But the critical link between the policies and a functioning market economy appears to be missing. The discipline of development is particularly ill equipped to explore the complexities of market formation in late, late developing countries.  This issue will be explored further when looking at case studies in Africa.

Fatou and Bwamay, Keur Aly Gueye, Senegal