Lay down the criticisms/disadvantages of the four classical theories of development.

The following are the 4 classical theories of development:

• The Linear-stage of growth model
• Structural change pattern theories
• International-Independence
• Neo-Classical (Counter-revolution) Theory

The pictures below are additional info about the 4 theories:

I. LINEAR STAGES THEORY DEVELOPMENT AS GROWTH Post-war interest on poor nations - Economists had no conceptual apparatus for largely agrarian countries w/o modern economic structures Strands of thought - Marshall Plan: US financial and technical assistance to war-torn European countries FOR EUROPEAN RECOVERY - All modern industrial nations were once SUPPLIED BY THE UNITED STATES OF AMERICA underdeveloped agrarian societiesI. LINEAR STAGES THEORY The Harrod-Domar Growth Model . the rate of growth of GDP ( Y/Y) is determined jointly by the net national savings ratio, s, and the national capital-output ratio, c. * To grow, economies must save and invest * Other components: labor force growth & technological progress . Sample: AY 69 AY co 15% Y 2% Y : 5% 3 3 . Countries able to save 15% to 20% would develop faster . PROBLEM: relatively low level of new capital formation in most poor countries ANSWER: through either foreign aid or private foreign investment (justified Marshall plan for developing world)I. LINEAR STAGES THEORY PROBLEMS: - Mechanisms of development embodied in the theory DOES NOT ALWAYS WORK * WHY? More savings and investment are not sufficient * Worked for Europe because of necessary structural, institutional, and attitudinal conditions ||. STRUCTURAL CHANGE 2-SECTOR SURPLUS MODEU LEWIS THEORY OF DEVELOPMENT - Structural transformation of a subsistence economy * Presence of 2 sectors: overpopulated rural sector wt zero marginal labor productivity and a high-productivity industrial sector ' Transfer of labor from traditional to modern, growth of product output II. STRUCTURAL CHANGE LEWIS THEORY OF DEVELOPMENT CRITICISMS: 1. Assumes labor transfer & employment creation proportional to capital accumulation. But what if profits invested in labor- saving equipment? 2. Contemporary research show little surplus labor in rural areas (except in some countries like China) 3. Urban surplus labor 4. Wages increase amid unemploymentII. STRUCTURAL CHANGE CONCLUSIONS . Major hypothesis: development is an identifiable process of growth and change with features similar in all countries. . Problem: The model does not recognize differences, factors influencing development process. . Limitations of emphasizing patterns over theory. May draw wrong conclusions about causality. . Optimistic that "correct" mix of policies will generate beneficial patternsIII. INTERNATIONAL-DEPENDENCE REVOLUTION 1970s - International-dependence models gained support because of disenchantment and stages and structural-change models - Resurgence in various forms in the 21it century Developing countries caught in a dependence and dominance relationship with rich countries because of institutional, political and economic rigidities = difculty for poor nations to be selfreliant and independent III. INTERNATIONAL-DEPENDENCE REVOLUTION 4 KEY ARGUMENTS ~ Different sets of conditions coexist: rich and poor. modern and traditional (Lewis model}, elites and masses. powerful industrialized nations and impoverished peasant societies - Chronic coexistence (not temporary) of wealth and poverty will not be rectified in time. - Degrees of superiority or inferiority show no signs of diminishing and instead increases - Superior element does little to pull up or "trickle down\" to the inferior element. may even push it down III. INTERNATIONAL-DEPENDENCE REVOLUTION - IDR models, amid ideological differences. all reject the emphasis on traditional neoclassical economic theories - Question validity of the Lewis-type models, reject Chenery observation of "well-dened empirical patterns" that should be followed by poor countries - Emphasis on international power imbalances and need for economic, political and institutional reforms (internal 8: world) - Expropriation of private assets w! expectation that public asset ownership and control will help address poverty 8: unemployment III. INTERNATIONAL-DEPENDENCE REVOLUTION WEAKNESSES: - Appealing explanation but no insight on how countries initiate and sustain development - Actual economic experience of developing countries that pursued revolutionary campaigns of industrial nationalization and state-run production has been mostly negative * Based on dependency theory. countries could pursue a policy of sutarky or inwardly directed development a trade w! other developing countries IV. NEOCLASSICAL COUNTERREVOLUTION Neoclassical counterrrevolution - Challenges statist models in favor of free markets, public choice & market-friendly approaches - Developed nations: favored supply-side macroeconomic policies, rational expectations theories and privatization of public corporations - Developing countries: freer markets and dismantling of public ownership, statist planning and government regulationIV. NEOCLASSICAL COUNTERREVOLUTION Argument - Underdevelopment resulted from poor resource allocation because of incorrect pricing policies and state intervention (corruption, inefficiency, lack of incentives, etc.) - State intervention slows economic growth - Neoliberals: economic efficiency and growth will be stimulated by free markets, privatizing state enterprises, export expansion and eliminating government regulation and price distortions Allow "magic of the marketplace" and "invisible hand" to guide resource allocation and stimulate economic dev'tIV. NEOCLASSICAL COUNTERREVOLUTION 3 component approaches 1. Free-market approach - markets alone are efficient; competition is effective, technology and information freely available and costless; gov't is counterproductive 2. Public choice approach - new political economy approach; governments do nothing right because of selfish interests; misallocation of resources 3. Market-friendly approach - imperfections in economy and need gov't for market-friendly interventions (social services and climate for private enterprise); acceptance of market failuresIV. NEOCLASSICAL COUNTERREVOLUTION CONCLUSIONS . Finger-pointing between dependence theorists (many from developing countries, seeing underdevelopment as externally induced phenomenon) and neoclassical revisionists (most from Western economies, blame gov't intervention and bad economic policies) Market price allocation may do a better job than state intervention but developing economies have very different structures: . Competitive free markets generally do not exist, information is limited, markets fragmented, etc. fppt.c IV. NEOCLASSICAL COUNTERREVOLUTION CONCLUSIONS . Invisible hand often lifts those already well-off, failing to offer opportunities for upward mobility of the majority Lessons from supply-and-demand analysis to arrive at "correct" prices "In an environment of widespread institutional rigidity and severe socioeconomic inequality, both markets and governments will typically fail