Chapter 3 Chapter Summary

The chapter explores the historical origins and continuous tension in international development studies as to whether market forces or state regulation should drive economic development.  The chapter also lays out the important concept of “political economy,” which is a means of understanding the changing and interlinking relationship of economics and politics within a particular time period. The chapter begins by considering the political economists who reflected on the Industrial Revolution that occurred in England in the late 18th and early 19th century. While Keynesianism validated an increasing role for the state in economic development in the wake of the Great Depression, it was not until after World War II that the field of development economics was formally born within the broader discipline of economics. Newly independent countries and their first-world advisors saw economic development as a process of economic, political, social, and cultural moderniza­tion led by big investments in infrastructure, import substitution, and foreign aid. In the early 1980s, state-led development began to falter, and classical economic recipes returned as neoliberalism. Neoliberalism’s emphasis on market forces faced an early challenge with the developmental success of highly interventionist East Asian economies in the 1980s and 1990s. By the 2000s, the market fundamentalism of the neoliberals had given way to a new institutionalism that emphasized the important role played by institutions in economics, allowing for greater pragmatism in how to stimulate economic development in the Global South. This chapter presents the main economic theories of development that have been applied in the Global South. The grand but simplistic notions of early development economics and modernization theory have not produced a Westernized conver­gence of the developing world with the industrialized North. Instead, Southern experiences with good and bad policy advice have contributed to creating today a world economy in which the South is evidently less underdeveloped but also less ready to listen to Western recipes for success.