Reinert Erik S,Ghosh Jayati and Kattel Rainer (eds),Handbook of alternative theories of economic development

Abstract

Reviewed by: Tony Jackson, University of Dundee, UK

In concluding her assessment of Albert Hirschman’s contribution to development theory and practice, Michele Alacevich (Ch. 24) remarks that ‘development economics has disappeared as a discipline’ (p. 472). Indeed, there are echoes of bygone times throughout this handbook. Reading its 40 chapters took me back to my days as a Cambridge undergraduate in the 1960s: our initial exposure to founders of the discipline such as Hirschman, Ragnar Nurkse, Gunnar Myrdal and Arthur Lewis fostered a belief that the problems of under-development were about to be resolved through the application of new economic tools. This volume offers a salutary reminder that reality fell far short of such expectations. Of the 41 authors from 22 countries, 24 are from Europe, eight from Latin America, and seven from the USA, with the remainder from Africa, Asia and Australia. The geographical spread of authorship meets one of the criticisms noted in the book’s introduction, where the co-editors task the discipline as having suffered from an Anglo-American hegemony of received wisdom.

As a further attempt to redress such a bias, the contributors cover a range of topics extending well beyond the standard Anglo-American development syllabus. Sixteen chapters in an initial section devoted to ‘Development Thinking Across History and Geography’ provide potted surveys of early European, Chinese, Islam, Indian, Latin American and African development thinking, plus brief summaries of the League of Nations, the Havana Charter and UNCTAD. Nine chapters in a section on ‘Approaches to Understanding Development’ include Marxist theory and feminism plus a variety of different approaches to development issues, together with brief surveys of the outputs of some key development economists. The handbook is rounded off by a final section on ‘Issues in Development’, consisting of 15 chapters on topics such as the role of the agrarian sector, development planning, the Nordic route to development, the Schumpeterian approach, innovation systems and development, latecomer industrialisation, and development and the environment.

The lead editor of this volume, Eric Reinert, co-authors its Introduction and Epilogue (Ch. 40). He also provides chapters on the birth of development economics in Renaissance Italy (Ch. 1) and international trade in early modern Europe (Ch. 2), as well as co-authoring another on the post-Second World War beginnings of development economics as a discipline (Ch. 19). In these contributions, he sets out the arguments which frame the ideological approach adopted in the volume. They provide a post-communist alternative to the ‘Washington Consensus’ initially formulated in the 1980s. At this juncture, the World Bank, International Monetary Fund and World Trade Organisation adopted a set of tools for development policy and assistance founded on fiscal rectitude, foreign direct investment, open markets and promotion of free trade to boost export-led growth. Together they formed the nexus of an official multi-lateral development agenda for lifting nations out of poverty. Reinert contends that implementing this approach on a global scale has stifled effective development practice by instituting a neo-liberal recipe that promotes the interests of industrialised countries at the expense of developing nations.

For Reinert, the origins of the Washington Consensus can be traced back to a misreading of Adam Smith’s famous theorem that ‘the division of labour is limited by the extent of the market’. He argues (p. 348) that this should be read as requiring development policies that boost the division of labour through innovation and technological improvement. This would place Adam Smith squarely in line with prior Renaissance thinking amongst Italian city republics and subsequent German approaches typified by Friedrich List and then by Joseph Schumpeter, all of which advocate dynamic realisation of scale economies through the promotion of industrialisation. Such an ‘alternative’ reading is set against what has become the prevailing orthodox one, drawing on Smith’s theorem to advocate extending the market through the exploitation of prevailing Ricardian/Hecksher-Ohlin comparative advantages. From Reinert’s viewpoint, this static interpretation leads to development policies which promote free trade, laissez-faire and neo-liberalism at the expense of effective industrialisation measures, culminating in an approach which confines most of the developing world to the periphery of the global economy.

Contributions from other authors explore and expand Reinert’s thesis to varying degrees, providing some stimulating expositions as well as other rather mundane ones. Amongst the former, Richard Nelson (Ch. 18) offers a succinct summary of evolutionary economic theory and its emphasis on the importance of innovation and the role of institutions in stimulating economic growth, arguing that:

the difference between the evolutionary theory that is taking shape, and the neoclassical theory that has dominated microeconomic theorizing over the last half-century, is that evolutionary theory sees the economy as always in the process of change, with economic activity almost always proceeding in a context that is not completely familiar to the actors, or perfectly understood by them. (p. 323)

Jan Kregel’s short contribution provides a helpful policy context for evaluating the dichotomy identified by Reinert, as he reviews the role of effective demand in driving economic development (Ch. 27). He traces the evolution of post-Second World War academic debates on the funding of development assistance from this vantage point, and explains how this shaped the resulting advice proffered to multi-national lenders. Mehdi Shafaeddin (Ch. 30) takes the argument further by exploring how developing nations can benefit by adopting a dynamic, interventionist Schumpeterian approach to competitiveness and development, arguing that this offers a way for their industrial sectors to overcome the stranglehold on global markets exercised by trans-national corporations. Bengt-Åke Lundvall (Ch. 31) adds a brief review of the concept of ‘national innovation systems’, explaining his involvement with Christopher Freeman in identifying the ingredients necessary to promote and manage effective technological innovation. Making the link with evolutionary theory and Schumpeterian ideas, he suggests that initiatives such as ‘Globelics’ might form the basis for stimulating growth in developing nations. This global research community brings together researchers in innovation and development studies, to explore the potential of nurturing systems of innovation as drivers of economic performance.

Drawing on these preceding chapters, John Mathews (Ch. 32) considers China and Elizabeth Thurbon and Linda Weiss (Ch. 33) look at Japan, South Korea and Taiwan, to demonstrate how these latecomers have created ‘developmental states’ to stimulate manufacturing-based growth. In establishing bureaucratic institutions capable of launching interventionist policies to deliver effective support for rapid industrialisation, these nations have also over-ridden most of the arguments underpinning the Washington Consensus. Evidence of the growth potential inherent in the developmental-state model provides the firmest argument in support of Reinert’s thesis.

The initial section of the handbook has few such gems and could easily be omitted without sacrificing the basic arguments on which this volume rests. There are some banal offerings in the other two sections as well. Prabhat Patniak (Ch. 17) concludes his survey of Marxist theory and underdeveloped economies as follows:

The fact that some economies appear to have overcome underdevelopment even within the framework of capitalism, or even without putting into practice the development agenda put forward by Marxist theory, does not negate the validity of this theory. The facts regarding their overcoming mass unemployment and hunger have to be carefully examined first; and even if these facts may be true in some instances, we have to consider the periphery as a whole, where no such tendency is evident. (pp. 321–332)

Despite such blind alleys, this collection still provides some useful insights into the reality of development processes for practitioners in local development. This is particularly the case for those contributions which explore alternatives to static neo-classical growth policies, and summarise recent advances in development practice stemming from the analysis of dynamic processes inherent in the works of ‘classical’ authors such as Hirschman and Schumpeter. Even in developed nations, topics such as evolutionary theory, the role of innovatory systems and the potential of the developmental state can provide the foundations for further initiatives when pursuing new regionalism approaches to local development based on endogenous growth theory.