By Svenja Flechtner, Jakob Hafele & Theresa Neef
Much has been said about what’s going wrong in development economics – on this blog (for example by Adel Daoud, Ingrid H. Kvangraven, or Jacob Assa) and elsewhere (for example by Angus Deaton, Dani Rodrik, and Benjamin Selwyn), as well as in newspapers. Much has been written, too, about alternative perspectives and approaches to economic development thinking (this recent compilation by Reinert, Ghosh and Kattel gives an overview of many of them). But is it possible to build a coherent pluralist and critical framework out of these approaches? If so, what could a critical and pluralist research agenda for development economics look like?Read More »
The marginalist revolution in the late nineteenth century marked the beginning of the end of classical political economy and the birth of what came to be known as neoclassical economics (Sandelin et al. 2002). All three pioneers of marginal utility theory—Carl Menger (1871), William Jevons (1888), Léon Walras (1954) —referred to scarcity as the starting point for economic analysis. Through the work of these pioneers, especially Menger’s, the centrality of scarcity became a core premise for the advancement of contemporary neoclassical economics (see Hayek 2004:19; Robbins 1998:277). As a result, virtually every neoclassical economic textbook refers to scarcity—even though the field of economics is becoming increasingly differentiated.
I have argued in my research that scarcity problems are, and will remain, an important sub-set of problems, but we need to include sufficiency and abundance problems as well (Daoud 2007, 2010, 2011a, 2011b, 2015, 2017). Under scarcity, economics will give us insights about how people optimize their behavior to get as much as possible out of their limited resources. Neoclassical economics is mainly interested in what we can call allocation problems under a scarcity assumption. If actor A has a set of resources R, that is scarce in relation to fulfilling a set of wants W. Neoclassical economics tells us that a rational actor will optimize his or her resources in such a way that person can derive as much utility U as possible given the circumstances. These types of problems are central to many social science issues—they face governments allocating a limited budget to a myriad of popular demands, they face the individual in deciding if he or she should go to university or take a job. As social scientist, we need to keep analyzing these situations.Read More »
During the 1990s, although the market paradigm was dominant in economics and public policy, a new literature stressing the importance of the role of the state in industrialization rose to fame. We can mention Alice Amsden’s Asia Next Giant (1989), Robert Wade’s Governing the Market (1990) or Peter Evans’ Embedded Autonomy (1995). This literature dwelled on the East Asian miraculous industrialization and showed with empirical and historical evidence how the state apparatus was necessary to spark the economic take off. More recently, these academic attempts multiplied (for instance in the developmental state literature with Ha-Joon Chang’s Kicking away the Ladder, 2002) and gained new interest after the 2008 financial crisis. Yet, this literature is not novel and draws its inspiration from previous economists and social scientists, who for a long time warned us of the danger of disintegrating the state from the economic sphere. On the other hand, mainstream theorists tend to undermine, if not ignore, state intervention and consider it as an exogenous variable to economic growth (see for example Bela Balassa, Lord P. T. Bauer, Anne Krueger and Deepak Lal). The post-1980s era had provoked academic debates around the role of the market versus the role of the state for developing countries: the claim made by mainstream economists and politicians was that countries which pursued a state-led industrial policy failed greatly and that the Latin-American debt crises was an illustration of this (see for example the 1983 World Development Report). On the contrary, it was observed that the East Asian newly industrialized countries (the so-called ‘four tigers’) ‘miraculously’ developed by pursuing market-oriented policies (see for example the World Bank). As heterodox economists, such as Amsden, Wade, and Evans, retaliated by stating the exact opposite, the extent to which the state could be an industrial actor or not become a new agora for both camps.
However, what if the terms of the debate were problematic at the conceptual level from the beginning? Is the dichotomy “state vs. market” as evident as it appears to be in policy debates? A theoretical detour going back to Karl Polanyi might help us shed some light on this issue.
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