Global Political Economy Series: The Wretched of the Earth - Development and Poverty
Foreword
It is common to hear in public discourse that the world has never been as interconnected and interdependent as it is today. Technological progress in the fields of communication and transport has promoted giant leaps in the last 100 years in terms of the internationalisation of the economy. The term globalisation, in fact, has become of common use, and national economies can no longer be studied without facing their embeddedness in the world economy. The series of articles Global Political Economy Series strives to address the complexity of the global economy by historicising the process that led to the present situation, providing an overview of the different academic approaches, and finally coming up with critical interpretations of the global economy and globalisation. The study of global political economy as a coherent subject of inquiry provides valuable insights into the big issues of our days, such as poverty, inequality, development, and sustainability. The pieces will maintain a humanities-based approach. Therefore, the economy will be seen as the intertwining between several factors like politics, society, culture, and human agency rather than the result of mathematical calculations. The set of articles will be divided into three blocks, each one composed of three articles. The first block will analyse the world economy from a historical perspective. The second one will provide an overview of the main theoretical interpretations of the world economy. The third one will address some of the main questions of today’s global political economy with the analytical tools previously provided.
Global Political Economy Series is divided as follows:
Global Political Economy Series: From the Discovery of the Americas to Imperialism
Global Political Economy Series: Decolonisation, World Capitalism and Neoimperialism
Global Political Economy Series: Neoliberalism and Globalisation
Global Political Economy Series: Liberal and Neoclassical Interpretations
Global Political Economy Series: State-centric & Developmentalist Interpretations
Global Political Economy Series: Critical Approaches and Dependency Theory
Global Political Economy Series: Why Few Have Much, and Many Have Little - Inequality
Global Political Economy Series: The Wretched of the Earth - Development and Poverty
Global Political Economy Series: The Mantra of Our Times – Sustainability
Global Political Economy Series: The Wretched of the Earth - Development and Poverty
The present article is the second of the last block of this series, which aims to analyse major contemporary issues in the Global Political Economy (GPE). The last article addressed the problem of inequality, striving for an answer to the following question: Why do few have much, and many have little? Here, a much-related topic will be analyzed on the end of those many who have little; poverty and (under)development. Poverty will be seen as inherently related to (under)development. As in the rest of the series Global Political Economy Series, poverty and development will be seen from a historical point of view and will be put in a global context. In other words, they will be analyzed within the framework of the global economy. The study of the world economy as a whole provides useful insights into the nature of poverty and development, and allows for the appreciation of the intertwinement of several factors -economic, political, or social- underlying those phenomena. The article will proceed as follows: In the first place, it will analyse poverty and development from different theoretical standpoints. Afterwards, a historical view of the problems of poverty and development will be provided. Finally, some conclusions will be drawn on the nature, implications and interrelation of poverty and development.
Poverty and Development: What Are They?
Poverty is one of the recurring issues of human societies, and it is often conceptually connected to inequality and development. The aim of this section is to analyze what poverty and development are and how they are approached from different theoretical standpoints.
The Liberal Point Of View; More Market Less State
Poverty is often seen as one aspect of underdevelopment which can be solved by driving one country away from it. From a liberal standpoint, poverty and underdevelopment are tightly related, and both are caused by the incorrect functioning of the market. Just like inequality, the emergence and permanence of poverty in human societies are seen as a mismanagement of the market institutions (McCloskey, 2016). According to liberal thinkers such as McCloskey, Rostow, Nurkse, and Krugman among others, the emergence of market-based capitalist societies was a big leap towards the improvement of life conditions worldwide, and therefore it led to a reduction in the number of people living in poverty (McCloskey, 2016). In fact, it is fairly safe to say that poverty has diminished drastically after the emergence of industrial capitalism (McCloskey, 2016), although the shrinking of poverty rates has been questioned lately after the appearance of neoliberalism and its hegemonic rise.
Therefore, from a purely liberal standpoint, poverty is the outcome of a partial misfunctioning of the market, which is supposed to provide the best allocation of resources itself (McCloskey, 2016). Consequently, those countries with the highest poverty rates are those that are not enough involved in the market’s dynamics; hence, they should engage in more liberal policies to guarantee their citizens the correct access to the resources that the market puts at their disposal (McCloskey,2016). The condition of incorrect functioning of the market is what is understood by liberals as underdevelopment.
Underdevelopment is thus due to the lack of investment, which itself is a consequence of the lack of saving: therefore, the way out led to the obtention of capital to be invested in underdeveloped countries. The economist Ragnar Nurkse (1966) suggested that those countries that found themselves in a condition where they did not have enough capital to be invested, should engage in attracting capital from abroad under the form of Foreign Direct Investment (FDI), in order to break the vicious circle of low investment, low salaries, low consumptions. Similarly, another liberal economist, Paul Krugman (1995), argued that the solution for underdeveloped countries to promote development was their insertion into the system of free trade, which would foster economic growth thanks to the specialization of national economies and the facilitation of capital flows. Walt Whitman Rostow (1959), an American economist and security advisor of Johnson's presidency, adopted a more structural view of development and conceived the idea of development as a ladder, in which the steps represent the historical evolution of world capitalism: at the bottom there are fully underdeveloped countries characterized by pre-modern societies, whereas at the top there are fully developed countries which are those with modern capitalist economies. According to this specific view, the way out of underdevelopment is the same for every country, as underdeveloped countries should just undertake the same steps that developed countries undertook in the past. The idea that development can be induced by simply pushing one country up the ladder of development, as it will be shown, had considerable influence throughout the 20th century.
Even though substantial differences can be found within the liberal scholarship concerning development, one common trait is the acceptance of market institutions, and the incorporation of underdeveloped countries into the world economy (Duffield, 2010). The realization of the steps of development would automatically entail, from this point of view, more opportunities for those that are stuck in the lower layers of society, thus reducing poverty. In this sense, liberal scholars tend to emphasize the concept of human capital, which is the value that individuals acquire on the market. In a similar fashion, the Nobel prize Amartya Sen (1999) affirmed that the opportunities that individuals are given in a market context are what matters, and are crucial for the correct functioning of society. In other words, according to liberals, poverty is the byproduct of a partial or total lack of accessibility to the market by individuals. Underdevelopment is understood as a condition in which certain states are not well-integrated into the world market and therefore cannot guarantee their citizens free access to the market economy. Liberal solutions to poverty are, for example, microcredit, which enables people with low incomes and generally in conditions of poverty and indigence to access the market and fully develop their potential (Ahlin & Jiang, 2008).
The State-Centric Point of View: More Market More State
The state-centric perspective on poverty and development diverges greatly from the purely liberal one, yet it assumes that the same link between poverty and development exists. This view of the global economy, which was predominant in the post-WWII era almost worldwide, maintains that the global market does not allocate resources in the most efficient way, but rather privileges some countries over others. In the developmentalist view, one of the main relevant streams of state-centric economics, development is to be achieved by undertaking certain steps, which will provide the transition from underdevelopment to development. Therefore, development is seen as a linear path, which can be achieved by undertaking several preconceived provisions (Reinert, 2010). It is evident here the contamination between the liberal thinking of Walt Rostow and state-centric political economy. In fact, if development can be seen as a linear path, underdeveloped countries do have the possibility of escaping their situation, and from a state-centric perspective, the responsibility of undertaking the steps towards development should reside in the state. More generally, development is achieved through industrialization, and the state should undertake action to protect what Friedrich List called the “infant industry” (Selwyn, 2009). In this view, the journey from underdevelopment to development can be undertaken by any state, provided that it complies with the required steps, which guarantee an advantageous insertion of previously underdeveloped states in the world economy. Engagement in industrial activities -which entail higher value-added- contributes to the provision of better living conditions for citizens. Therefore, development has a direct effect on poverty, as it provides better employment conditions and allows for a generally higher rate of employment (Selwyn, 2009). As will be explained in the next section, the idea of development as a linear phenomenon, and the state as the actors that should foster development, had very practical implications in the post-WWII global economy, specifically in regions such as Latin America and North-Eastern Asia.
Critical Approaches; Questioning the Market
Liberal and state-centric standpoints share the fundamental assumption that the evolution of a capitalist nucleus is the core premise for development. Underdevelopment is in fact conceived as a consequence of the lack of capitalism, and thus development from both points of view is to be achieved through the tools provided by the capitalist economy itself. Their fundamental disagreement amounts to the way those tools must be used. Critical political economy, on the contrary, maintains that underdevelopment and poverty are a facet of capitalism, and thus their analysis cannot be undertaken without addressing the intrinsic contradictions of the capitalist economic system (Harvey, 2014). One important assumption of critical political economy is that of looking at the world economy as a whole. Therefore, the economic trajectory of every single country cannot be fully understood if not in the context of its intertwinement with the global economy. In this context, the notion of a world system, elaborated by American sociologist Immanuel Wallerstein (1974) on the basis of the famous french historian Fernand Braudel’s concept of Longue Durée is particularly important as it highlights the existing connections between different groups of countries and invites scholars to examine the position of countries in relation to their stand within the world system and as the outcome of a historical process molded by capitalism.
Wallerstein (1974) divides the world system into two spheres: center and periphery. Countries that belong to the center are those that first developed a capitalist economy and exported it to the rest of the world through their colonial enterprises. This gave way to primary accumulation, meaning that throughout the colonial rule countries of the core accumulated capital at the expense of their colonies (Wallerstein, 1974). Underdevelopment is therefore the result of such an initial divergence between those countries that appropriated manu militari, meaning through the use of coercive violence, the resources, and those that were the victims of such a violent appropriation.
This conception has paramount implications regarding the question of development and poverty. Rather than being two conflicting concepts, one opposed to the other - underdevelopment merely being conceived as the lack of development, and thus of capitalist institutions - development and underdevelopment are seen from this point of view as the two sides of the same coin. Developed countries are in that position, according to critical political economy scholars, due to the fact that there are countries that are underdeveloped.
This conception of the world economy spurred the emergence of schools of economic thought, often from within underdeveloped countries, postulating the need for a deep reshaping of the capitalist world system. One influential example is the dependency theory and its thought on development. The dependency theory was coined within the ECLAC (Economic Commission for Latin America and the Caribbean) -the UN agency for the economic development of Latin America and the Caribbean- and its effort to promote the development of the subcontinent. The Argentinian economist Raúl Prebisch (1962) postulated that a relationship existed between the development of core countries and the underdevelopment of the peripheries, and more specifically the former had achieved its position and was maintaining it throughout the exploitation of the latter. Countries of the core also represented the centre of the world economy, engaging in the production of high-value-added products, whereas the periphery was relegated to the production of agricultural goods, fostering a relationship of unequal interchange between the two spheres of the world economy. A fundamental difference between engaging in the production of industrial goods and raw materials is that the former entails a high return rate, and thus allows for higher accumulation, whereas the latter has a small return rate, and hence does not allow for accumulation and investment.
In this way, dependency theory scholars refused both the liberal and state-centric views of development. Underdevelopment is approached from a structural standpoint, and therefore, an agency of underdeveloped countries for achieving development is seriously hindered by structural constraints (Prebisch, 1962) - in other words, the dependent position that underdeveloped countries have in the world system. On the one hand, the liberal assumption that the insertion of underdeveloped countries into the world economy would foster growth, and thus, development, was questioned by the fact that the latter were ill-equipped compared to the former to compete in a context of world free market. On the other hand, the conception of development as a linear path was also refused, as the relation of dependency between core and periphery hindered the possibility of underdeveloped countries of developing independently. In this sense, the Italian economist and sociologist Giovanni Arrighi (1990), highly influenced by Braudel's vision of history, maintained that the key problem for underdeveloped countries is their dependence from the center, and not industrialization, which was often presented as the solution. Industrialization, in fact, can reproduce the same patterns of dependency and foster processes of consolidation of underdevelopment (Quijano, 2014).
After delving into the different theoretical approaches around the problem of development and poverty, the next section will explore how those phenomena have evolved historically. Furthermore, it will analyze how different approaches to the global political economy have molded the way in which countries have positioned themselves vis-à-vis those key challenges in the global economy.
Poverty and Development: An historical approach
Just as much as inequality, poverty has been one recurring feature of human societies. It could be said that both are connected to the same issue, which is, the distribution of wealth among the population. Furthermore, poverty is tightly related -as it has been previously highlighted- to (economic) development. Nevertheless, the global scenario of poverty and development has not always been the same; as the configuration of the world economy has changed so has the distribution and conception. Many attempts have been made throughout world history to improve the living conditions of people, and yet underdevelopment and poverty are still crucial traits of our times. This section will explore the evolution of poverty and development throughout time, and how those two concepts can be associated with the evolution of the configuration of the world system.
Primitive Accumulation
It was not until the Europeans discovered the Americas that the geographical differential of development between countries started to take off (Dini, 2012). As Giovanni Arrighi maintained (1994), the conquest of the “new world” marked the beginning of global capitalism, which functioning started to benefit European countries, at the expense of Latin and Northern America in the first place. As the Uruguayan economist and journalist Eduardo Galeano (1971) argues, the original appropriation of the resources of Latin America from Spain and Portugal drove the region to suffer its consequences for centuries. The extractive model put in place in the Latin American sub-continent -and that was later expanded especially to Africa- left nothing in the region but poverty and disruption (Galeano, 1971). The end of colonial rule did not break the colonial tie that dependency theory scholars identified as responsible for the condition of most underdeveloped countries. Latin American countries were the first to obtain independence from their colonizer, nevertheless, their economies, far from flourishing and developing following an independent path, remained fundamentally constrained by the position that those countries occupied within the world economy (Galeano, 1971). The condition of underdeveloped of colonies and former colonies remained fundamentally steady throughout the 19th century, whereas Europe incessantly accumulated capital, that would later be invested into the industrial revolution (1994), with the USA slowly catching up. The industrial revolution increased the gap in terms of development between European countries and their colonies or former colonies, and at the same time spurred the increase of inequality and poverty within European countries.
While countries of the periphery remained in a condition of underdevelopment, obliged to abide by the rules of the world market that relegated them to the role of exporters of raw materials, core countries -particularly the UK, Germany, France, and by the end of the 19th century the USA- developed the most advanced economies keeping the pace with technological innovation brought in by the first and the second industrial revolutions (1994). However, even developed countries were plagued by poverty as industrial capitalism grew, which led Karl Marx and Friedrich Engels to write the Communist Manifesto in 1848, exposing the exploitative nature of industrial capitalism, and the effects it had on their contemporary societies in terms of poverty and marginalization of the working class (Marx, 2017). It can be observed, therefore, how poverty and development can coexist in those societies with high rates of inequality such as the early industrial ones.
The State-Centric Keynesian Model
The scheme of a developed centre and an underdeveloped periphery remained unaltered until the early 20th century, and so did the repartition of poverty which was widespread both in the periphery and the core - mainly in rural areas in the former, and in the suburbs in the latter. The world's repartition of poverty and the structure of economic policies was about to be shaken in the '20s. The crisis of 1929 represented a big shock for both developed and underdeveloped countries. The solutions to drive the world out of economic depression would pave the way to what later would become a widespread set of economic policies which often go under the name of Keynesianism (1994). The new deal, and the recovery plans after WWII were inspired by the thought of John Maynard Keynes, who postulated that the state should intervene heavily in the economy, resembling the state-centric perspective. Those policies allowed for an unprecedented economic growth in countries of the core, joined by a widespread reduction of poverty and inequality (1994).
This state-centric inclination not only affected already developed countries, but also those countries that were seen as the periphery of the world economy, specifically Latin America. The shock that the crisis of 1929 represented for Latin American economies was unprecedented, as the demand for primary goods and raw materials, upon which regional economies were based, dropped consistently. This led to a deep rethinking of the model of economic development that the region should follow, having noticed the condition of subalternity that the specialization in the production of commodities implied. The response was a widespread effort to achieve development through industrialization, adopting what is called import substitution industrialization (ISI) (Palazuelos, 1980). Such an inclination was fostered by the structuralist thinking of the ECLAC which recognized the dependency of the region concerning the import of manufactured goods and the threat that this implied for development. Following the pattern established by Rostow’s (1959) conception of linear development, the state had the role of promoting the leaps tending towards industrialization and thus, modernity. Therefore, from a model based only on monoculture, Latin American countries started to engage in economic activities of a different sort, closing their economies to imported goods, which were to be produced internally. This effort to invest in the internal sector surely reduced rural poverty and spurred certain economic growth and development in Latin American countries (Palazuelos, 1980). However, new processes of marginalization were put in place as a consequence of urbanization and proletarianization that followed industrial development (Quijano, 2014).
The Neoliberal Offensive
The worldwide trajectory of poverty and development suffered a drastic turn in the ‘70s and ‘80s due to the advent of neoliberalism as a hegemonic system, and the removal of all the constraints that were put on the market during the state-centric period (Arrighi, 1990). As argued by the former president of the World Bank, Branko Milanovic (2016), the expansion of globalization as the historical manifestation of neoliberalism at the world system level, led to the recrudescence of poverty. As previously poverty was mainly a problem of so-called third world countries -underdeveloped ones- in the age of globalization it started again to be a preoccupation of developed countries; those that constitute the core of the world economy. Globalization increased poverty rates in the lower classes of underdeveloped countries and drew segments of what previously was the affluent middle class in undeveloped ones (Milanovic, 2016).
The changes that occurred in the world economy starting in the ‘70s throughout the ‘80s and ‘90s -deregulation of the market, retrenchment of the state from the economy, financialization- dismantled most of the social provisions that the state participated economy of the Keynesian era entailed. This resulted in a widespread worsening of labor conditions, including wages and stability (Harvey, 2005). This phenomenon was particularly visible in developed countries, where fairly high standards of living had been consolidated in the post-war era due to a policy of high wages and mass consumption and resulted in the progressive relegation of wide shares of the middle class into a situation of relative poverty (Harvey, 2005). In underdeveloped countries, neoliberalism had a different effect. By the ‘70s most third-world countries were engaging in some sort of developmentalist initiative, promoting their internal markets and trying to spur industrialization and economic growth (this is particularly true for Latin America and Africa). Neoliberalism hit those countries through the means of structural adjustment, imposed by the IMF (International Monetary Fund) as a condition to renew the loans they had contracted. Structural adjustment consisted of the opening of their economies to the world market, and therefore the end of their developmentalist initiatives (Petras & Veltmeyer, 2011). Such a sudden opening to the world market had devastating effects on development and poverty. Those who relied heavily on the state’s intervention in the economy remained completely unprotected against the forces of the free market, and poverty increased drastically (Bértola & Ocampo, 2012).
Furthermore, the hope of achieving development throughout autonomous industrialization - highly questioned by critical scholarship and dependency theorists for its impossibility to promote emancipation from countries of the core - that most underdeveloped countries had followed, was truncated by the policies of structural adjustment that resulted in a re-primarization of those economies. Most of the underdeveloped economies were ill-equipped to enter a globalized world market, therefore, they are unable to compete against developed countries in high-value-added sectors such as highly technological industries or even tertiary services that require high-skilled labour. This has relegated many of those nations again to the role of exporters of primary goods and in some cases providers of a cheap labor force exploited by the multinational corporations based in developed ones -as in the case of the maquila industry between Mexico and the US (Harvey, 2005).
Conclusion
The problem of development and poverty have always been present in the history of the world economy. The two phenomena are tightly related, and the absence of development is often followed by the presence of poverty. However, even in developed countries poverty has been present. Scholarship has approached development and poverty in very different ways. Liberals argue that underdevelopment is equivalent to insufficient participation of one country in the market; the free evolution of the market forces will lead to development, and thus the improvement of living conditions. State-centric economics postulates that the insertion of underdeveloped countries in the world market must be mediated by the state to protect their internal economies that otherwise would be overwhelmed by external competition. Critical scholars argue that development and underdevelopment are two sides of the same coin; development in some regions is the consequence of underdevelopment in others. As Galeano (1971, pág. 19) famously put it: “the international division of labour consists in some countries specializing in winning and the others in losing”, and therefore, the development of some regions is due to the exploitation of others that are relegated to be exploited and oppressed.
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