Les Schaffer godzilla at
Wed Nov 1 13:54:53 MST 2000

[ bounced > 30 kB from Sam Pawlett <rsp at>
  i'll post the first part here .. reformatted slightly for email ]

Notes on Development Theory

   Sam Pawlett


Development theory took off after WWII with the first wave of
decolonization. The problems facing the newly independent countries
became of concern to intellectuals who wanted to understand the plight
of the newly independent countries as well as rationalize
imperialism. Such problems had in the past really only been the
preserve of those working in the Marxist tradition because of the
events and issues raised by the 1917 Russian revolution. Because of
the small size of the Russian industrial working class and the
agrarian nature of the economy, the Russian revolutionaries were
concerned with problems of underdevelopment and the problem of
building socialism in a backward country where Marx and his followers
said that socialism would (not could) take place in advanced
industrialized capitalist countries. Russian and German Marxists like
Pleknakov and Kautsky argued that socialism could only be built on
nations that had developed capitalist economies. Only a high level of
productivity could support socialist social relations . . .

The central concern of the U.S. and British governments and their
intellectual servants were that the newly independent countries might
fall into the Soviet sphere of influence. The USSR presented an
alternative model of development since in 1917 it was in a similar
position with a poor, technologically backward, mostly agricultural
peasant society. The USSR had industrialized quickly through a period
of "socialist primitive accumulation," had raised standard of living,
advanced technologically and maintained a high degree of economic
self-sufficiency. The hope for leaders of newly independent countries
was that these countries could repeat the Soviet experience with a
minimum of the immense costs suffered by the peoples of the USSR.

The newly independent countries were to be kept out of the Soviet
sphere so the raw materials, oil and cheap labor supply could come to
benefit the U.S. and Britain. This was to be done through a mix of
covert action, military intervention, a range of macroeconomic
instruments especially including the World Bank and IMF.

What is Development?

Development theories are closely bound to the development of
capitalism itself. The content of the theories themselves, reflect the
degree of development of the productive forces and the state of the
class struggle. The theory itself emerges as something to be
explained, i.e. development theories are both the cause and effect of
the reality they purport to explain. As Marx and Engels explained:

"The ideas of the ruling class are in every epoch the ruling ideas
i.e.  the class which is the ruling material force of society is at
the same time its ruling intellectual force. The class which has the
means of material production at its disposal, consequently, also
control the means of mental production, so that the ideas of those who
lack the means of mental production are on the whole subject to
it. The ruling ideas are nothing more than the ideal expression of the
dominant material relations, the dominant material relations grasped
as ideas; hence of the relations which make the one class the ruling
one, therefore, the ideas of its dominance."(GI,59)

The classical economists including Marx had no conception of
"development" as we speak of today, they only sought to understand
pre-capitalistic economic formations as they led eventually to
capitalism. At the time there were only capitalist societies and non
or pre-capitalist societies. The issue was to explain how
pre-capitalist societies became capitalist. Marx ridiculed the
traditional notion of ‘original sin' in primitive accumulation where
capitalist relations arise from frugal and hardworking individuals(the
capitalist class) and lazy individuals (the proletariat.)(Capital
V.1p873ff.) In Marx's view capitalism came into being through the
seperation of workers from the means of production such that all they
has to sell was their own labor.

The full title of Adam Smith's most famous book "The Wealth of
Nations" is "An Inquiry into the Nature and Causes of the Wealth of
Nations". A concept of development is inherent in the title. Smith is
interested in how nations become wealthy and stay that way. For Smith,
the development of society occurs through the division of labor and
the application of technology leading to an increase in the
productivity of labor. Smith held a theory of value where he believed
that the wealth of a nation is equal to what it produces each year. To
increase wealth, one must increase production. Economic activity is
the physical production of material goods. Further, productive work is
such that allows only for the accumulation of material wealth and
hence material wealth has value only in so far as it embodies human
labor. So, in Smith's view, the key factor in increasing national
wealth is an increasing amount of the workforce dedicated to
productive work. In addition an increase in the division of labor will
increase productivity. This is achieved through an expansion of
international trade and the international market. One of Smith's key
errors was to try and show that rent and profit contribute to value
and thus show a harmony of interest among all classes of society.

David Ricardo saw political economy as an investigation into "the
produce of the earth is divided into three classes of the community,
namely, the proprietor of the land, the owner of the stock or capital
necessary for its cultivation and the laborers by whose industry it is

Ricardo, like Smith, defended a "labor theory of value" where the
value of a commodity is the result of the amount of labor incorporated
in it such that the amount of time taken to produce the commodity. So
wages, profits and rent could only come out of the value created by
the working class. In contrast to Smith who saw a harmony on interests
among all three classes, Ricardo saw conflict between the capitalists
and the landowners. Landowners benefit as population grows between
from cultivating less fertile land with diminishing returns. This
pushes up rents and increases the price of corn in the towns in turn
pushing up wages. As a consequence, the profits of industrialists fall
as value is transferred to the landowners. The manufacturers need to
boost accumulation by lowering the price of food in order to lower
labor costs.

Development then for Ricardo is a process of self- sustained
accumulation of capital; and growth that could only be arrested by the
limitations of available land. Ricardo allowed for the free import of
corn and raw materials in exchange for manufactures. "Let these be
supplied from abroad in exchange for manufactured goods" (Hudson for

Marx and Engels on Development

Marx and Engels (ME) views on development, colonialism and
economically "backward" nations is controversial and depends to a
large degree on which aspect and which particular text one wants to
emphasize.  Great consideration must be given to the time and the
mileau in which ME wrote. Given the state of knowledge of non-European
societies at the time, there is any way ME couldn't have been
Eurocentric and diffusionist.

Marx termed his work " a Critique of Political Economy." While
building on the insights of Smith, Ricardo and Mill as well as many
other lesser knowns, he wanted to penetrate beneath the veil of
appearances to lay bare the laws of motion of capitalism, to explain
the operation of the capitalist market by the real social relations
which lay in the process of production (Weeks).

One must interpret Marx on development while considering his ideas as
part of the materialist conception of history, though there is a
question whether his concept of development can be reduced to
historical materialism as some writers have done (e.g. G.A. Cohen). I
think it is best to see development as one aspect of historical
materialism because historical materialism is a theory that seeks to
explain how all modes of production shift from one mode to another
whereas the theory of development is concerned only with the
capitalist mode of production.

Broadly, one important aspect of Marx's theory of development is about
the expansion of the productive forces i.e. concerned with the
expansion of productivity. Marx is with Smith in this regard though he
has a much different theory. Development is about the drive for
capital accumulation i.e. the need for capital to appropriate the
surplus value created by labor and to realize the surplus value
through the selling of commodities in the market, thus allowing the
process to be continued on an ever widening scale. Marx describes
capital accumulation independent of any moral evaluation of it.

To increase accumulation is to extract more and more surplus
value. Given capitalist constraints on prolonging the working day,
capitalists must try and reduce the value of labor power by increasing
the productivity of labor by means of new technology and improved
methods of production. The development of the productive forces also
created crisis and instability through a tendency for the profit to
fall, concentration of capital and thus heightened competition between
capitals. (Larrain 42.)

The limitations to the growth of the productive forces is the
opposition of the working class to capitals imposition of the
mechanisms aimed at growth in productivity and the struggles of
workers to satisfy the needs that capital itself ha created. The class
relations that create surplus value become the barriers to the
realization of profit and subsequently to the accumulation of capital:
the crisis in exchange relations is based in the crisis of production
i.e. in the relations between classes. Capitalist relations of
production act as a barrier to the expansion of valorization of
capital. The relations of production are the barrier to the growth of
the productive forces. This where foreign trade becomes of importance
as a means of accumulation without a direct confrontation with the
working class. This explains the universalizing tendency of capitalist
social relations. Further foreign trade helps resolve the realization
problem by creating new markets elsewhere in the world.

Modernization Theory

The first non-Marxian theory to emerge that showed how the
peripheral nations could escape the poverty and technological
backwardness of their economies was called modernization theory. It was
called modernization because these theorists drew a Weberian ideal type
distinction between traditional and modern societies. The social cement
of traditional societies was things like caste, kin and birthright while
the modern societies represented by North America and Europe had
opposite institutions that allowed them to grow e.g. a special unique
rationality. Modernization theory had a number of different versions
each drawing on psychology, sociology, economics and politics. The most
well known author in the economic modernization was W.W. Rostow. His
book The Stages of Growth – A Non-Communist Manifesto  argues that all
societies go through a series of five stages as they evolve through
history; traditional society, preconditions for take off, take off, road
to maturity and the age of high mass consumption. This theory is a
hangover from the ‘4 stages' theory pioneered in the Scottish
enlightenment by the likes of Adam Ferguson (see Meekb for more.)Rostow
thought that all the American and European countries had gone through
these stages and had arrived in the era of mass consumption. Peripheral
nations to develop must repeat Europe's experience, they must do "as the
Europeans have done." The peripheral nations were stuck in stage 1 or 2.
The main barrier to  advancing to the next stage was a lack of
technology. For Rostow, communism is a disease  that intervenes between
stages 1 and 2. To prevent this disease from permeating all the
peripheral nations, Rostow argued that development assistance, aid and
support for modernization should be given by the core countries to the
periphery to prevent communist revolutions that had already occurred in
Cuba and other places. The result was The Alliance of Progress for Latin

Rostow's theory was to act as a surrogate for actual historical
processes the so-called developed and modern societies had gone
through.  Rostow could not take actual history seriously since this
would mean having to take on Marx and Engels something not possible
for political reasons. His theory is ex post facto, prescriptive and

Modernization theories assume that underdevelopment is an original
state, which must throw off the shackles of traditionalism and adopt
Western values. Like Max Weber, modernizers like Rostow and Hoselitz
thought underdeveloped societies were as such because of the lack of
western values like achievement motivation, entrepreneurship, hard
work and thrift. Development thus requires programs that will instill
these values. One of the problems here is that there is no explanation
of how underdeveloped societies came to be that way. Without this
knowledge, it is hard to identify obstacles and potential for future
development.  Further, the values that allow societies to develop are
specific and unique to Anglo-America and must spread to "backward"
regions. No analysis is given of the historical reasons why Europe
developed and the peripheral nations did not.

One of the most serious shortcomings of Rostow's theory is the
inability to specify how a society goes from one stage to the next. He
gives no account of structural and institutional change over time.
There is no reason to suppose a society will go from one stage to the
next. Further, no country has ever developed by means of Rostow's
stages. Modernization theory states that economic growth and
development occur endogenously. This abstracts from the complex
international and historical relations within which nations and
geographical areas are imbedded, resulting in an impoverished
explanation.  To explain development, the modernizers prescribe the
diffusion of Western values yet these values are of course external to
the country under examination.

Why then with such a poor theory, was it adopted? The answer is in
realpolitik. Rostow's theory was a rationalization for U.S. foreign
policy. The spread and reign of modernization theory had little to do
with its intellectual power than with its close convergence with US
state and corporate interests, coinciding with US imperialist
interventions in the third world during the 50's and 60's. The best
way to further development was through the continuation of imperialist
policies since underdevelopment by definition occurs when societies
resist imperialism. Modernization theory's decline came
unsurprisingly, after the devastating American military-political
defeat in Vietnam.  Further, modernization theory acts as a theory of
European superiority over non-European cultures.

Economistic Approaches

In the 1950's a school known as development economics arose. Its main
adherents were Arthur Lewis, Simon Kuznets, Charles Kindleburger and E.
Domar. These theorists were concerned almost solely with economic growth
and how an underdeveloped society could foster economic growth and
become less impoverished. These economists build formalistic models on
how a country could grow. The main fault here is, again, a lack of
historical process.

The history of underdeveloped economies is the history of European

Deflationary Approaches

Deflationary approaches argue that the very concept of "development" is
nonsensical and mistaken. The issues of most third world social
movements from the 1979 Iranian revolution to the mass popular upheavals
in S.Korea  is not productivity growth or the growth of the productive
forces but autonomy, freedom and self-government as well as exploitation
and authoritarian social relations. The goal of the West in its dealings
with the third world is wealth and domination not development. The focus
is on financial or fictitious capital the fastest growing and most
expansive sector today attracting the best university graduates.
(Petras, Bernstein)

 The Analysis of ECLA

Under the chair of the Argentinian economist, Raul Prebisch, The
U.N. Economic Commission of Latin America pursued a critique of trade
theory that would influence the dependency theorists. The process of
development and underdevelopment was a single process, the core and
periphery form part of a single world economy where disparities
between the regions are reproduced through international trade and a
series of asymmetrical relationships and causal processes.  Prebisch's
main target was the orthodox notion of comparative advantage first
introduced by David Ricardo. Comparative advantage states that an
economy should produce what it produces most efficiently even though
it may not be the cheapest producer globally or absolutely. Prebisch
put forth the argument the terms of trade of underdeveloped counties
decline over time because the prices of imported manufactured goods
rise relative to the raw materials exports of the importing
underdeveloped countries.

ECLA took into account historical factors in its core-periphery
model. Colonialism. Mercantilism and the industrial revolution created
a high productivity, high wage, manufacturing core and a raw materials
producing periphery.

ECLA concluded that if orthodox trade theory was correct, the prices
of raw materials would rise faster than the manufactured goods because
of demand. This was not the case as the peripheral countries were
transferring value to the core countries. To rectify this situation,
peripheral nations would have to increase the percentage of
manufactured products in their economies through "import-substitution"
i.e. replacing the manufactured imports with domestically produced
goods. The state was to play a primary role erecting protectionist
barriers so the whole industry would not have to face competition from
the outside.  Moreover, the state was to engage in industrial planning
but not so as to replace business but to guide the private sector
through giving incentives, disincentives, and relevant fiscal and
monetary policy.

The thought of ECLA came in for heavy criticism from the left and the
right. The left emphasized the lack of analysis of class and
capitalism as a whole. ECLA, for all its criticism of textbook theory,
still remained wedded to capitalist development and the diffusion of
"middle class" values from North to South. In its diffusionism, ECLA
remained faithful to modernization theory.

ECLA identified a number of causal factors in the transfer of value
from south to north. There was a scarcity of workers in the north and
a relative surplus of labor in the south. This situation kept prices
of core manufactured products high while keeping the prices of
products produced in the south low. Prebisch concludes that 1st world
unionized labor exploits their comrades in the third world. This
analysis bears some similarity to the Lenin/Trotsky idea that workers
in the north are beneficiaries of imperialism as they are through
organization and class struggle able to sucre a share of the spoils of
imperialism. (Cf.  M.Hudson for critique)

For ECLA, if there was perfect mobility of the factors of production
as orthodox trade theory assumes, the surplus labor of the south would
be absorbed into the labor markets of the north. Of course, this has
never been the case with tight immigration laws, the costs of
emigrating and social and cultural barriers to doing so.

Further, demand for industrial products grew rapidly while demand for
raw materials fluctuated because of the amount of low wage low
productivity countries competing to export the same items. This was
because new products developed in the core were substituting for raw
materials in e.g. plastics, improvements in technology made primary
products decreases a proportion of total value.

The right criticized ECLA for confusing the effects of recession with
general historical deterioration of the terms of trade. ECLA was just
criticizing the effects of a recession in the peripheral countries,
using as recession as the base of normal economic activity and
ignoring upswings assuming that the low points are the chronic
condition of the country or region under consideration.  The usual
arguments against protectionism and mercantilism were reproduced too;
absence of competition made industries inefficient, their products
poor, expensive and catered to a small elite of the domestic
population. Further the state could be captured by "rent" seeking

ECLA also produced influential analysis of the hyperinflation and
import-substitution prevalent in Latin America in the 60's and 70's.
Their analysis of the failure of import substitution can be summed up

1) persistence of foreign exchange problems
2) inability of industrialization to give benefits to other areas of the
3) the limited absorption of surplus labor
4) growing inequality in income distribution
5) growing power of foreign capital over strategic industries.
6) 5) reduced autonomy.

Dependency Theory

There are many different dependency theories, some only bearing a
superficial resemblance to one other. Andre Gunder Frank's theory is
probably the best known and certainly the most commented
on. Dependency theory has received short shrift among scholars and
activists because its best theorists came from Latin America and a lot
of their work has not been translated into English. Broadly,
dependency theorists can be divided into two groups the reformists and
the Marxists. Reformists would be Cardoso and Faletto, Sunkel,
Furtado, Jaguaribe, Ferrer and Pinto. Marxists would be Marini, Dos
Santos, Frank, Braun, Bambirra, Quijano, Torres-Rivas, Vasconi,
Aguilar, Garcia, Baran and Sweezy. The Marxists might better be called
neo-Marxists since they challenge the classical Marxist notion that
capitalism will develop all nations as it spreads throughout the
world. Marxists advocate socialist revolution to overcome dependency
while reformists advocate economic nationalism and measures aimed at
gaining economic self-sufficiency. Dependency theories usually contain
some of the following claims:

1) The social, economic and political conditions prevalent in UDC's is
not an original state of affairs but is the result of the same
historical process that developed the core countries.

2) The prime causal factor in this historical process was capital
seeking opportunities for profit and possibilities for capital

3) (2) occurs where costs and risks are lowest and the return on
investment is highest. A consequence of this process was surplus
removal from the UDC's to the core countries where these capitalists
are based.  The structure of the UDC's economy becomes subordinated to
the profit taking needs of core countries and is bound up with the
need to accumulate capital by these core countries resulting in an
external orientation of the UDC's, e.g. export of primary commodities
and import of manufactures. The UDC's economy is marked by monoculture
and low productivity.

4) Local initiatives to pursue autonomous development are blocked and
the domestic market is small due to low incomes.

5) Social classes emerged in the UDC's who have class interests in
common with the bourgeoisie of the core countries leading to alliance
of these class which, amongst other things, further blocks attempts
and opportunities for autonomous development in the UDC countries.

6) These processes are self-perpetuating and the structures produced
by these processes are self-reproducing.

7) The differences in wealth, productivity between the core and
periphery is due to asymmetries in political power.

8) These asymmetries cannot be overcome within the present capitalist

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