International Studies Paper(Graduate students)

IAFF  6101   Interna-onal  Affairs  Cornerstone  

Lecture  7:   Development  and  Interna-onal  Policy  

Prof.  Henry  Farrell    

October  11,  2016  

Development  and  IR  

•  Development  has  always  had  an  internal  logic.   – Why  do  some  countries  grow  quickly  and  others   not?  

– What  can  we  do  to  help  countries  grow?   •  But  also  an  interna-onal  rela-ons  aspect.   – Countries  rarely  help  others  develop  for  purely   altruis-c  reasons.  

•  This  class  –  to  study  the  rela-onship  between   the  two.  

Themes  of  Class  

•  Development  and  security  –  ini-al  arguments.   – Rostow  and  dependency  theory.  

•  Why  development  wasn’t  working  –  new   debates.   – Emergence  of  Washington  Consensus.   – Alterna-ves  –  focused  on  governance  and  corrup-on.  

•  Current  arguments.   – Should  we  be  engaged  in  aid  at  all?   – Should  we  be  pushing  for  more  room  within   globalized  system?  

– Should  we  look  to  new  tools  (experimentalism  etc)?  

Origins  of  Modern  Aid  

•  Modern  US  debates  about  interna-onal  aid   date  back  to  post  World  War  II  period.   – Earlier  Western  arguments  mixed  up  with   missionary  ac-vity,  mission  civilisatrice  etc.  

•  Focused  ini-ally  on  prac-cal  ques-on  of  how/ whether  to  help  Europe  recover  from  war.  

Liberal  and  Realist  Perspec-ves  

•  Liberal  jus-fica-on  for  aid.   – We  are  all  be^er  off  in  a  world  where  everyone  is   growing.  

– Security  benefits  (peace)  and  economic  benefits   (trade).  

•  Realist  jus-fica-on  for  aid.   – Under  limited  circumstances,  aid  to  those  with   shared  interests  can  be  jus-fied.  

– May  help  build  up  allies  (but  problems  of  rela-ve   gains).  

Marshall  Aid  Program  

•  Intended  to  help  economies  of  war-­‐ravaged   Europe.  

•  Went  together  with  crea-on  of  ‘Bre^on   Woods’  ins-tu-ons.  

•  Marshall  Plan  pumped  US$13  billion  into   Europe  between  1947-­‐1951.  

•  Some  humanitarian  mo-ves  –  but  clear,   underlying  poli-cal  ra-onale  (strengthening   weak  European  states  v.  Communism)  

1950s  and  1960s  Debates  

•  Fundamental  ques-on  of  development  –    why   do  some  economies  grow  more  quickly  than   others?  

•  Simplifying  drama-cally  –  1950s  and  1960s   saw  two  compe-ng  paradigms  trying  to   answer  this  ques-on.   – Moderniza2on  Theory  –  stressed  need  for  internal   reforms.  

– Dependency  Theory  –  stressed  need  to  remake   world  economy  on  more  equitable  terms.  

Moderniza-on  Theory  

•  Exemplified  by  Rostow’s  influen-al  ar-cle.   •  Saw  the  problem  of  growth  as  one  involving   internal  changes  to  the  market.   – Different  stages  of  growth.   – Move  from  agriculture.   – Stress  on  few  sectors  amenable  to   industrializa-on.  

– Internal  victories  for  modernizers.  

Domes-c  vs.  Interna-onal  

•  Rostow’s  argument  not  really  an  interna-onal   one  –  focused  on  domes2c  condi2ons  for   growth.  

•  Interna-onal  factors  only  relevant  as  external   spur.   – Shock  of  foreign  conquest.   – Tutelary  posi-ve  examples.   – S-rrings  of  rivalry.  

•  But  implied  role  for  aid  in  helping  develop   industrial  sectors.  

Dependency  Theory  

•  Borrowed  from  Marxist  (Lenin)  and  pre-­‐ Marxist  (Hobson)  theories  of  imperialism.  

•  Saw  problem  of  development  as  bound  up   with  world-­‐wide  system  of  capitalism.   – Core  countries  (industrialists  who  reaped  most   benefits).  

– Peripheral  countries  –  condemned  to  marginal   existence  producing  basic  inputs.  

– Semi-­‐peripheral  –  stranded  between  two.  

Domes-c  v.  Interna-onal  

•  Implica-on  –  that  real  development  only   possible  through  transforma-on  of  system.  

•  For  individual  states  –  best  op-on  was   protec2onism  and  import  subs2tu2on  for   industrial  goods.   – Weaken  domes-c  regressive  forces.   – Allowed  them  to  start  to  escape  logic  of   interna-onal  dependency.  

– Perhaps,  over  -me,  start  to  remake  logic  of   interna-onal  system.  

Poli-cal  resonances  of  debate  

•  In  Cold  War  context  –  not  a  poli-cally  neutral   debate.  

•  Moderniza-on  theory  explicitly  intended  as  an   alterna-ve  to  Marxism.   – Rostow  had  second  career  as  Vietnam  hawk.  

•  Dependency  theory  –  intended  to  remake   American  hegemony  from  beneath.   – Had  strong  influence  in  La-n  America.  

Crea-on  of  USAID  

•  USAID  act  –  in  1961.   •  USAID’s  ra-onale  in  providing  aid  heavily   influenced  by  Rostow.  

•  Also  had  a  security  ra-onale.   •  John  F.  Kennedy  :Economic  collapse  of   developing  countries  “would  be  disastrous  to   our  na-onal  security,  harmful  to  our   compara-ve  prosperity,  and  offensive  to  our   conscience”  

•  Later  bilateral  aid  agreements  olen  linked  to   military  coopera-on.  

Early  Western  approach  to  aid  

•  Both  bilateral  and  mul-lateral  (via  e.g.  World   Bank)  aid  built  on  Rostow’s  theories.  

•  Focused  on  spurring  industrializa-on  –   agricultural  sector  ignored.  

•  Strong  collabora-on  with  local  state.   •  Emphasis  on  big  infrastructural  projects  –   roads,  dams  etc.  

Problems  of  early  theories  

•  Neither  moderniza-on  nor  dependency   theory  seemed  to  spur  development.   – Moderniza-on  theory  –  produced  mediocre   growth  in  La-n  American  countries  that  tried  to   implement  it.  

– Dependency  theory  –  import  subs-tu-on  a   failure,  and  examples  of  India  and  China  an   embarrassment.  

Development  and  end  of  Cold  War  

•  1990s  saw  collapse  of  Communism.   •  Four-­‐fold  consequences.   – Increased  pressure  on  overall  aid  budgets.   – Efforts  to  rethink  development  and  aid  in  former   Soviet  bloc.  

– Par-al  release  of  aid  from  geostrategic   considera-ons.  

– Enhanced  power  of  condi-onality  –  e.g.  on   democra-c  ins-tu-ons.  

Two  New  Schools  of  Thought  

•  Collapse  of  communism  had  consequences  for   both  poli-cs  and  ideology.   – Increased  stress  on  globaliza-on   – Narrowing  of  spectrum  of  ‘legi-mate’  debate.  

•  Cleared  the  way  for  two  new  approaches.   – Development  through  ‘Washington  Consensus.’   – Emphasis  on  ins-tu-ons  and  governance.  

The  ‘Washington  Consensus’     Washington  Consensus  Policies:  Williamson’s  10   principles  

  1)  Fiscal  discipline     2)  Reordering  public  expenditure  priori-es     3)  Tax  reform   4)  Liberaliza-on  of  interest  rates   5)  A  compe--ve  exchange  rate   6)  Trade  liberaliza-on.     7)  Liberaliza-on  of  inward  foreign  direct  investment.   8)  Priva-za-on   9)  Deregula-on   10)  Property  Rights  

Reordered  consensus  (Inder  Sud)   Macroeconomic  Stability  

Ø  Fiscal  discipline     Ø  Reordering  public  expenditure  priori-es     Ø  Tax  reform  

II.  Encourage  Private  Investment   Ø  Liberaliza-on  of  inward  foreign  direct  investment.   Ø  Priva-za-on   Ø  Deregula-on   Ø  Property  Rights  

III.  Promote  Exports   Ø  A  compe--ve  exchange  rate   Ø  Trade  liberaliza-on.    

IV.  Deepen  Financial  Sector   Ø  Liberaliza-on  of  interest  rates  

Ins-tu-ons  and  development   •  Second  approach  emphasized  domes-c   ins2tu2ons  as  key  to  growth.   – More  purely  academic  –  ini-al  impact  in  IOs  was   limited  (unlike  Washington  Consensus  (Babb)  no  big   states  sponsoring  it.  

•  North  –  neoclassical  economics  doesn’t  cover   dynamics  and  transac-on  costs.  

•  Ins-tu-ons  –  ‘rules  of  the  game’  determine   rela-ve  rewards  and  transac-on  costs.  

•  Countries  with  appropriate  ins-tu-ons  will  have   much  higher  growth.  

Key  ins-tu-ons  for  North  etc  

•  Sound  property  rights  (lowers  transac-on   costs  and  allows  securi-zed  loans).  

•  Rule  of  law  –  Limited  state  and  effec-ve  legal   system  lowers  risks  of  contract.  

•  Stamping  out  of  corrup2on  –  lowers   transac-on  costs  and  improves  state  decision   making.  

Role  in  ‘Structural  Adjustment’  

•  Washington  Consensus  played  key  role  in  IMF   decision  making.  

•  Many  countries  (esp.  in  La-n  America)  had   difficul-es  borrowing  on  interna-onal  markets   in  wake  of  earlier  problems.  

•  IMF  demanded  ‘structural  adjustment’  in   return  for  bailout  loans.  

•  Fundamentally  reshaped  poli-cs  in  affected   countries.  

Problems  with  structural  adjustment  

•  Poli-cally  controversial  –  seems  neutral  but   can  have  sharp  distribu-onal  consequences.  

•  Difficult  to  sustain  over  -me  without  deep   poli-cal  interven-on.  

•  Perhaps  didn’t  work  as  well  as  hoped  in   pupng  countries  on  more  sustainable   economic  path  (Easterly).  

•  Washington  Consensus  didn’t  appear   correlated  with  economic  success  (Rodrik).  

The  Governance  Turn  

•  More  recently,  World  Bank  and  IMF  have   turned  more  and  more  towards  ‘governance’   issues  (code  word  for  quality  of  government).   – Seek  to  address  (gingerly)  problems  of  corrup-on.   – Emphasis  on  engagement  with  NGO  sector.   – Emphasis  on  micro-­‐level  projects,  consulta-on,   be^er  control  of  where  the  money  goes.  

Current  Debates  over  Development  and  Aid  

•  Something  happened  to  US  aid  levels  aler   2001  …  

New  Security  Ra-onale  for  Aid  

•  Problems  of  failed  states.   – NSC  2002  -­‐  “America  is  now  threatened  less  by   conquering  states  than  we  are  by  failing  ones”  

•  Fallout  from  Iraq.   •  Need  to  secure  support  from  strategically   important  states  for  ‘war  on  terror.’   – Reduc-on  in  leverage  for  non-­‐security  goals   (Afghanistan).    

But  Security  Consequences  Uncertain  

•  Aid  may  some-mes  weaken  states  rather  than   helping  them.   – Can  prop  up  corrupt  and  unpopular  regimes  in   absence  of  domes-c  support.  

– Can  possibly  prolong  civil  wars.  

New  debates  about  aid  and  development  

•  (Par-al)  eclipse  of  Washington  Consensus.   •  Poli-cized  aid  likely  to  con-nue.   •  But  broader  ques-oning  of  ra-onale  for   rela-onship  between  aid  and  development.   – Libertarian  cri-que  –  should  we  have  aid  at  all?   – Lelwing  cri-que  –  should  we  be  pushing  back  on   globaliza-on  instead?  

– Social  scien-fic  cri-que  –  bold  and  persistent   experimenta-on!  

Easterly  –  Was  Aid  a  Waste  of  Time?  

•  Basic  claims   – We  don’t  know  why  some  countries  grow,  while   other  countries  don’t,  despite  decades  of   specula-on.  

– Economists  as  experts  –  not  so  much.   – Aid  may  worsen  democracy,  bureaucra-c  quality,   rule  of  law  and  corrup-on.  

– No  accountability  or  feedback  from  the  poor.  

Rodrik  –  Experimentalist  Development  

•  Rodrik  –  presents  social  democra-c  argument   for  development  through  loosening  of   globaliza-on.   – Like  Easterly,  points  to  problems  of  World  Bank,   IMF  etc  in  picking  winners  

•  But  argues  instead  for  a  loosening  of  bonds  of   globaliza-on,  esp.  in  trade.   – Increased  policy  space,  not  market  access.   – Would  limit  the  ethical  fallout  of  globaliza-on.   – Allow  for  greater  experimenta-on  to  see  what   works.  

Current  Ques-ons  

•  Development  a  key  policy  problem.   – But  one  where  there  is  li^le  agreement  on  how  to   solve  it.  

•  New  approaches  point  to  different  kinds  of   experimentalism.   – Easterly  –  libertarian/free  choice.   – Rodrik  –  Na-onal  level  experimenta-on.    

•  But  unlikely  to  unseat  Washington  Consensus.  

But  Also  Unresolved  IR  Problem  

•  Why  should  we  be  engaged  in  development  aid   in  the  first  place?  

•  For  construc-vist  reasons?   – Have  norms  changed  since  missionary  era?  

•  For  liberal  reasons?   – Need  to  know  more  about  how  aid  promotes   economic  growth.  

•  For  realist  reasons?   – When  does  it  promote  security?   – Should  we  care  about  long  term  consequences?