Cola_Wars

Madhav Mehta Comparative Development 18th December 2009 I would first like to start by presenting a slightly grim truth about the social sciences- it is that all who are engaged in it live in uncertainty. Different studies give different results; there is no blueprint, no foolproof plan for development. However this does not mean that development is impossible, neither does it mean that certain policies, systems, and developmental strategies don’t work better than others. Development is definitely possible, however the road that leads a nation towards development follows a twisted path. Countries differ and thus methods for attaining development also do as they correspond to the local conditions and environment. There are multiple definitions of development, however, the dominant definition is one that treats economic growth as the centerpiece of development. I quite like Amartya Sen’s conception of development as one that “must go much beyond the accumulation of wealth and the growth of gross national product (Sen, 14)”; he mentions that under-development is present even in rich countries like the USA, where life expectancy for African Americans is lower than that of the people in the province of Kerala, India. However we also must realize that income and wealth play an essential role in giving people “more freedom to lead the kinds of lives they have reason to value (Sen, 14)”. Thus even though it is nice to hold a view of development as an ideology rather than an actually attainable goal like Wolfgang Sachs and Amartya Sen do, for all practical purposes excessive stress on economic growth proves to be a widespread conception as the focal point for development. The World Bank, the International Monetary Fund, as well as William Easterly, an American economist, strongly follow this definition. Thus the goals for the country of Pomona as far as economic and political development is concerned must be- a. to reach the path of self-sustainability in economic development, b. to have a responsive democratic government that provides civil and political liberties to all its citizens, c. to import western style economic systems and to try to promote foreign direct investment, and d. to lay heavy emphasis on education. I will go into more detail as to how and why I haven chosen these points through the course of this paper. There is a widespread view that the poorest countries are in a poverty trap, and that they need a ‘big push’ (foreign aid) to free themselves from this trap, after which sustained growth will occur and aid will no longer be needed. William Easterly calls this “The Legend of the Big Push”, thus the basic point here is that there must be enough foreign aid to push the poorest towards self-sustainable economic development. However, isn’t it odd that after fifty years of rich countries giving foreign aid to poor countries so many countries are still at the bottom' William Easterly, through cumulative evidence of a number of studies, came to the conclusion that poor countries without aid will have no trouble achieving positive growth and they can grow and develop on their own. William Easterly’s view holds that bad governance is more the culprit of negative growth than not receiving foreign aid. Jeffery Sachs, an economist leading the United Nation’s Millennium Development Project, believes that we can realistically envision a world without extreme poverty by 2025, however he stresses that the projects success is highly dependent on carefully planned development aid. I feel Jeffery Sachs shows a lack of wisdom and judgment, he does not show much political insight, Sachs’ argument lays its base almost entirely on economic models, which Easterly believes are not completely correct. How is growth possible if there is no government to support it' Having a bad government has huge economic consequences, and keeping a check on that gives more hope for positive growth than dependence on foreign aid. In addition, too much foreign aid can lead to slow growth and stagnation, and contribute to bad governance by creating a dependence on aid. However, I am not saying that foreign aid is downright awful and should be put an end to, it may not help in economic growth but can help in the removal of diseases, increase in the supply of clean water, and can provide food in areas of famine, etc. All I am saying is that bad governance is the principal driver of negative/zero growth and not the inability to receive foreign aid. This gives light to the fact that the country of Pomona can walk the path of self-sustainable economic development without major dependence on foreign aid and thus move closer towards self-sufficiency as a state. It may or may not be necessary that democracy is essential for growth. Democracy can or cannot help growth. Robert J. Barro, an American economist, is especially skeptical about the effect of democracy on growth. Barro’s study of data resulted in him making the conclusion that nondemocratic countries that have high standards of living tend to experience more democracy over time. Barro claims that this is also conversely true; democracies with low standards of living tend to lose political rights over time. He believes that developing countries must import western economic systems (property rights and free markets) rather than their political systems, which will develop as standards of living gradually increase. Adam Przeworski, a Polish-American political scientist, believes that the more democratic a government is, the greater the diversion of resources from investment to consumption, which thus decreases economic growth. His argument can be summed up in the following points- 1. Poor people want to consume immediately, 2.When workers are able to organize, they drive wages up, reducing profits and thus investment, 3.When people are allowed to vote, governments tend to distribute income away from investment (tax and transfer or lowering public investment), 4. Lowering investment slows down growth. However there are arguments against this train if thought as well, Amartya Sen believes that ‘the intensity of economic needs adds to, rather than subtracts from, the urgency of political freedoms’. He believes that here is little evidence that authoritarian regimes and the suppression of political and civil rights really encourage economic development. Amartya Sen’s argument focuses a lot on allocative efficiency, he stresses that a democracy has never experienced a famine, and also claims that the press and opposition constitute the best ‘early warning system’. Amartya Sen believes that the denial of basic civil liberties is as bad as economic poverty. Thus even though democracy may or may not help economic growth, it is of supreme importance in itself. It is of intrinsic importance, plays an instrumental role (early warning system through opposition and press, no famines, etc.) and also has a constructive role, as the ultimate aim of democracy is to have a government that is responsive to the needs of the people. For a country that is on a path towards political and economic development, it is absolutely essential to enforce democracy. Peter Evans, a political sociologist, focuses the attention of states’ ability to be effective as agents of industrial transformation. He focuses a lot on the bureaucracy’s role as being an effective means of this transformation. States play a pivotal role in encouraging development, and thus the presence of an ‘embedded autonomy’ is essential. Increasing the quality and effectiveness of the bureaucracy plays a significant role in increasing the ‘embeddings’ of the autonomy of a state, which he says will only improve if bureaucrats are appointed on the basis of merit and that it is made to be a stable career path for prestigious people to join. Thus protecting the state from corrupt bureaucrats who see ‘rent seeking’ as the only reason for being part of a bureaucracy. Resources for the bureaucracy must compete with those of the private sector. Brazil has been facing such problems for quite a while now as its appointment of bureaucrats was based on connections rather than on merit. Evans shows some skepticism towards neo-liberalism, and focuses more on the importance of state-structure. However we live in a neo-liberal age and I must emphasize its importance and consequences as it too, plays a pivotal role in understanding economic development. The essence of neo-liberalism is to get the government out of the economy. It does this by leaving economic growth to the market, reducing government red tape, and increasing budget cuts, even if it means cutting budgets for food subsidies and other developmental projects. India can be viewed as a good example of partially accepting such a model. From 1947 to 1990, the state was too dominant; the country followed the practice of having “Permit Raj”. Where entrepreneurship was very slow, as it required the need of multiple permits, elaborate licenses, regulations and accompanying red tape. In 1990, however, the government liberalized its economy, reduced the number of permits and red tape, and stepped considerably out of the economy. India has experienced steady, positive economic growth ever since. However, there is a developmental speed bump to economic growth. Simon Kuznets made a discovery that economic inequality increases over time while a country is developing, and it is only after a certain average income is attained that inequality begins to decrease. The Kuznets curve provides a good insight into this relationship between increase in average income and inequality – As we can see here, as average income increases, the share of incomes of the poorest twenty percent initially drops, thus disparities are bound to increase initially. The inequalities are currently increasing in countries like China and Brazil. Brazil, after making a considerable amount of economic reforms in 1994, has seen considerable economic growth, however it is facing extreme income inequalities, to tackle this problem, the current President Lula has launched the Bolsa Famlilia (Family Allowance) program that aims at providing education and food to the poor. Why have so many African states have failed to develop' African countries have been experiencing chronic failure in economic growth. Nicholas Van de Walle believes that bad policy making (such as taxing exports) is just the tip of the iceberg. The core problem for the reason of the failure of African states is due to bad state structure. Patrimonialism and Neopatrimonialism being important concepts that relate to this problem. These are basically systems based on personal relationships and thus limit those who can get rewards. Armies obey the leader and not the nation, institutions are weak, and this system encourages the formation of corrupt patent-client relations. Thus in a Neopatrimonial state, the capacity of the state is inclined to decrease rather than to increase. Thus a state must build strong institutions and have democracy in order to avoid such a situation. Economic Integration and the new world system of globalization do play an important role in the effecting development. With International bodies such as the United Nations, The World Bank, and the IMF, and dominant powers such as the United States all willing to help the process of development of weaker states, it certainly makes the task easier and safer for us. Importation of technology and expertise, creating markets outside borders are all positive movements towards the developmental process. What would be more fruitful than foreign aid from such international bodies though would be if other rich countries reduced tariff on foreign goods and thus boost our export sector. Though help is there, the task of forming a stable and self-sufficient government is in our hands. Thus, as the country of Pomona embarks on a path of political and economic development in an age of globalization, I hope I was able to enlighten the Ministry of Development with some of the wisdom of comparative research, the lessons learnt from theoretical debates and from successes and failures around the world, and I wish the country all the very best in all its future endeavors.