Theme 3; Key Idea 1 and 2

Adam Smith

Collectively the individuals in soceity could manage to produce the goods and services that they as a society require.

He claimed that a nations wealth is the stream of goods and services that it creates.

He was against any restrictive trade policies, e.g. tarrifs. 

Believed that the government should be limited and keep the economy open and free. The gov. main functions were to maintain defence, keep order, build infrastructure and promote education - not get involved with trade or economic matters. 

Restrictions on international trade make both sides poorer. 

Smith also beleived in a 'division of labour' - huge efficiences can be made by breaking down production into many small tasks, each undertaken by specialist hands. This leaves producers with a surplus that they can trade with others. 

David Ricardo

Was inspired by Smith's wealth of nations. 

Came up with the law of comparative advantage, a key arguement in favour of free trade among countries. 

He argued that there is a mutual benefit from trade beven if one party is more productive in every possible area than its trading counterpart, as long as, each concentrate on the activities where they have a relative productivity advantage. 

John Maynard Keynes

Emphasised the positive role that the government could play in the stimulation of economic growth. 

Introduced the 'Multiplier effect' - which stated that investment in new infrastructure from governments would lead to a decrease in unemployment, this would increase the purchasing power of a countries citizens meaning that they could buy more goods. Overall this would lead to an increase in economic growth. 

This was a direct challenge to the other economists of the time, e.g. Smith and Ricardo. 

Keynesianism came to have an enormous influence over governments throughout the world after 1945. But was mostly successful in promoting short term stabilisation in already industrialised economies. 

Eurocentric assumption that all countries should follow the path of Northern nations. Development is seen as economic growth. 

Walt Rostow created a model that illustrated how a traditional society could/would turn into a society of high mass consumption, e.g. USA. The model consits of five stages: 

1. Traditional society
2. Pre-conditions for take-off
3. Take off
4. A drive to maturity
5. The age of high mass consumption

Problems with Rostow's model: 

• Disregards; population size, natural resources, location and neighbouring countries
• Assumes that all countries start off at the same level
• Doesn't accept that some societies may take different paths
• Some may resit the modernising process

There was a lack of evidence to suggest that modernisation was working. 

Andre Gunder Frank was modernisations main critic, he thought that poverty should be seen as the end point not the starting point. It was rich nations that kept poor nations poor, not themselves. 

Core developed countries take raw materials, brain power, political support and debt repayments from peripheral developing countries. In return peripheral developing countries get manufactured goods, aid and pollution. Countries are stuck in a viscous cycle of development where they produce agricultural goods, have to sell them for a low value, don't may a large profit and cannot invest in machinery or manufacturing. 

A country can escape dependecy by breaking away from dependency and becoming isolated. 

Problems: 

• Which countries are part of the core and which are part of the periphery?
• Hard to break away in an increasingly globalised world. 

State involvement was seen as detrimental to development. Instead they suggested that the state should provide a framework in which NGOs and companies should operate. 

It was trade restrictions that caused distortions in world trade and that the opening of national markets would allow the markets to operate fairly. This would also ensure that all countries would prosper by using their comparative advantage to produce goods at a price others are preparerd to pay.

All countries would benefit from increasing international trade and therefore wouldn't need aid at all - TRADE NOT AID. 

Criticisms of neo-liberalism: 

• Produces low levels of economic growth
• FDI is not unviersally spread
• Many developing countries cannot compete on the global market. 
• Countries wil neoliberal policies have seen an overall decline in quality of life indicators.

Some theorists began to see development as a European idea and method of extending Western powers. They saw development as being destructive to local traditions and indigenous cultures. 

Arturo Escobar thought that development was a sham which created massive underdevelopment, impoverishment, opression and famine. 

People in developing countries have the right to lead their own lives in their own local communities, free from global ideologies like development. Suggested that we should encourage local communities to address their own problems. 

From this thought process came the idea of new-social movements. 

A 'Social Movement' is a group of people with a common idea who try to achieve a certain general goal. 

Zapitistas, Mexico

• A peasant and indigenous organisation who are against the marginalisation of indigious peoples. 
• Went public on the 1st Jan 1994 and seized the occupation of four towns in Chiapas. 
• Declared NAFTA  a 'death sentence' for peasants in Mexico, US corn exports. 
• Believed that indigenous people were being used as a tourist attraction. 
• They wanted the dismissal of corrup local governments, the return of cultivaiable land to indigenous people, support for the use of indigenous languages and the support for the rights of women. 

Critiques of new-social movements

• Ignore the practical benefits of development, e.g. water sanitation. 
• Portray the relationship with the west as one of domiation, ignore genuine attempts to help.
• Stereotype
• Focus too much on the local; hard to be local in a globalising world.

Grassroots approaches to development began in the 1970s and were a response to the impacts felt from top-down development projects, e.g. cash-cropping that often increased poverty and inequality. 

Without increased political power of the poor, technical solutions just wouldn't work. Suggested that the poor needed greater control over the processes that affect their lives by incorporating them into the planning and implementation of development projects. 

Two appraoches to grassroots development; 

1. Help the poor to help themselves - E.g. NGOs working with locals to identify their needs
2. People from the community planning their own projects and seeking financial and technical support for themselves. 

An example of grassroots projects can be seen in the Millennium Villages, this is a multi-stakeholder project which is designed to demonstrate how the MDGs can be reached in rural Africa. They aim to address the root causes of extreme poverty by using a community-led approach. 

This view of development underpins the work of international organisations and many national governments in the North. 

For example, the World Bank uses GNP per capita to divide the countries into development categories. It is assumed that with greater wealth comes other benefits such as improved health, education and quality of life. 

The World Bank aims to provide low-interest loans and grants to developing countrires. They also aim to offer support to developing countries through policy advice, research and analysis, and technical assitance. 

Neo-liberal policies have influenced the World Bank's development strategigies through conditionality, e.g. SAPs. 

Neo-liberal ideas also ifnluence the HIPC Initiative; HIPCI was launched in 1996 and was set up to provide low-interest loans to reduce external debt to sustainble levels for developing countries. However, conditions were attached, for example, you could only be accepted in HIPC when your debt was unsustainable, the country had a good track record of social reforms and they had a commitment to poverty reduction through policy changes. 

Haiti was forced to slash the protectionist policies it offered its rice producers to meet its SAP conditions set by the World Bank. This meant that cheap American rice imports flooded the markets and outpriced local farmers. 

Today the country fails to produce enough food. It imports 80% of its main staple, rice. The country currently has food insecurity. Despite 80% of its population living in poverty and having an average life expectancy of 52, Haiti failed to qualify for debt relief. However, they were finally allowed to join HIPC in 2006. 

During HIPC they had to send $1 million each week to wealthy banks to service debt and needed to take out more loans to meet HIPC conditions. 

In the late 1980s the UNDP began to use the HDI as an alternative measure of development to GDP, this saw development as 'expanding the choices people have to lead the lives that they value'. It also has the ability to participate in the life of the community and empowerment by giving more choice. 

With widerspread critcism of SAPs, the World Bank began to focus on local engagement, participation and poverty reduction. They helped countries to formualte their own development approach based on local consultation, these were called Poverty Reduction Strategy Papers (PRSPs)